Beyond the Elasticity: How the Tax Wedge Improves Predictions of Durable Spending

Durable goods, such as cars, appliances, and furniture, differ significantly from non-durable goods in terms of purchasing patterns. Consumers don't buy them frequently, and the decision to purchase is often driven by a complex interplay of factors beyond just income. These factors include: Replacement Needs: Durable goods eventually wear out and need replacing. This replacement demand can be somewhat independent of income fluctuations. Financing Options: Durable goods often have high upfront costs, leading to reliance on credit and loan terms. Interest rates and down payment requirements can significantly impact purchasing decisions. Durability and Technological Advancements: The lifespan of durable goods is increasing, leading to longer replacement cycles. Additionally, rapid technological advancements can influence upgrade decisions.