Effect of Income on Travel Expenditures

The importance of income as an explanatory variable influencing consumption behavior has been well documented in the economic literature. The budget constraints imposed by the incomes available to families limit not only their total consumption expenditures but also their outlays for specific goods and services. Thus, income has been found to be a significant factor in virtually all empirical demand analyses. The strong partial correlations between income and expenditures for a specific item applies both for differences among families at a single point in time and for variations over time.

From the standpoint of urban highway planning, the relation between income and auto expenditures is considerably less important than that between income and some measure of highway use such as vehicle-miles. The income elasticity for expenditures can, however, be related to the income elasticity for vehicle-miles. The relationship between these two will depend on the parameters of the fully specified demand equation and the correlations among the various explanatory variables.

A family's choice of the location and quality of its housing directly affects its travel demands. For example, an executive may choose to pay high rents for a high-rise apartment, thereby reducing the time and dollar costs of travel. A second executive may prefer to consume more residential space in some outlying suburb. By doing so, he commits himself to greater outlays for travel to work, as well as for shopping, recreation and the like. In short, housing and travel appear to some extent to be directly competing goods in the urban family's budget.

To sum up, movement up the income hierarchy is associated with absolute increases in expenditures for almost all goods including local transit services. The rate of increase in spending with increased income does vary considerably among individual items. Auto transportation does appear to be a luxury good; its estimated income elasticity is typically greater than unity. On the other hand, outlays for housing are not as responsive to changes in income; transit outlays tend to be even less responsive.