Expanded Summary

The structural analysis of households is frequently overlooked in the formulation of state policies, which hinders the formation of an adequate vision. Studying the behavior of representative agents does not enable the examination of the principles governing the actual operation of policy transmission mechanisms. The reason for this is that various groups of households interact with each other, influencing the economy's sensitivity to different policy instruments. In such circumstances, the macroeconomic policies implemented by the state can lead to income redistribution. A fundamental question arises regarding the homogeneity of indicators of consumer behavior, such as consumption elasticities from different types of income, intertemporal substitution elasticities of consumption, average propensities to save, and various transmission channels.

This paper examines the reasons for differences in intertemporal substitution elasticities of consumption at various income levels and their impact on household interactions and the channels of interest in macroeconomic policy. Accordingly, differences in intertemporal substitution elasticities of consumption not only result in varying elasticities of consumption from different types of incomes but also contribute as an additional factor to their heterogeneity alongside differences between income levels.  Differences between levels of individual incomes also influence intertemporal substitution elasticities of consumption. The analysis considers steady states or conditionally steady states of household consumption when the indicators of intertemporal consumption elasticity are very low or equal to zero

To address the aforementioned issues, the parameters discussed above were examined using data from selected countries (Georgia, Armenia, Azerbaijan, Russia, Turkey, Estonia, Lithuania, Latvia, the Netherlands, Austria, and Switzerland), as well as various income levels of households in Georgia. The analysis employed a modernized Evans model for a non-linear consumption function with constant elasticity coefficients applied to both the Georgia Household Survey data and the data from selected countries. We also consider the function proposed by Jappelli and Pistaferri to investigate intertemporal substitution elasticities of consumption

According to the models, the elasticities of consumption from permanent income are determined to be in the range of 0.95-1.05 for the models constructed for Georgia, and 0.93-0.98 for the models constructed for the selected countries. The models demonstrate the homogeneity of the elasticities of consumption from permanent income.

A comparative analysis of countries reveals that nations like the Netherlands, Switzerland, and Austria, despite the weight of current income in permanent income, exhibit high average propensities to save and low standard deviation values of average propensities to save. Moreover, in the mentioned countries, the elasticities of intertemporal substitution of consumption are high, with low standard deviations. Conversely, in other countries, we observe lower indicators and/or higher standard deviations of these mentioned indicators

The model, based on the example of Georgia, demonstrates how the situation in low-income groups can impact high-income households. Furthermore, the model illustrates the heterogeneity of intertemporal exchange elasticity of consumption across income groups

The analysis also indicates that the Ramsay-Keynes rule may be less applicable in low-income countries. Additionally, it suggests that δ is greater than r during crises and vice versa during booms.

Research shows: that the behavior of households at different income levels differs, although certain common psychological principles may apply. These should be considered within the context of household structure and interaction; Factors that alter the long-term budget of households, thereby affecting permanent income and consumption, can exert a significant influence on household behavior. For instance, such shocks may include changes in taxation, as they directly affect the long-term financial position of households; If households have reached a level of satisfaction where a small increase in income does not enhance their utility, they will not respond to incentive programs; Interest rate volatility does not significantly affect the behavior of households in low-income countries or low-income households, primarily due to limited access to credit resources, high-income inequality, low-risk propensity, and low elasticity.