increase of food consumption is 0.458% and it is of 0.556% for education. This suggests that both food and education are income inelastic. The average level of food expenditure in our sample is quite low and only about 5.7% of total household expenditure (see table 3).<sup>4</sup> This item contains basic and staple foods such as rice, meat and fruits with a relative lower quality differentiation with respect items such as household equipment and clothing. Food demand patterns have changed dramatically in Vietnam due to the fast economic growth, with rice consumption per capita steadily declining and consumption of high-protein foods (e.g. meat, seafood, eggs) steadily rising (Hoang, 2018). Food represents a fix cost for households and the quantity consumed depends mainly on the household size, as there are individual upper and lower limits of the quantity of calories that can be consumed, explaining the low level of elasticity. The same can be said for foodstuff and beverages and tobacco, whose average expenditures account for 5.5% and 2.5% of the households’ budget. Despite having a higher expenditure elasticity with respect food, both are still relatively low indicating low responsiveness to income changes. Education has very low responsiveness to income changes, but it is the main item of expenditure in our samples’ households, accounting for an average of 24% of the households budget. Primary education is diffused in Vietnam, while secondary and higher education are expensive and with low enrollment rate. We could not differentiate between different classes of education with the data at hand, but it is likely that higher education has a much higher income responsiveness in Vietnam. This would be in line with existing work (e.g. World Bank, 2020) showing that wealthy households spend a lot more on education compared with the poor ones.

Electricity is also quite inelastic to income changes and accounts for an average of 14.2% of the household total expenditure. This suggests that with growing household income, electricity became essential to the living standards of Vietnamese households. Indeed, in the last 10 to 20 years, energyintensive appliances became more accessible to Vietnamese households who passed from low- to middle-income families. Currently, the large majority of households have at least a televisions and a rice cooker. Refrigerators are owned by up to 60% of households and more households plan to buy air conditioners, computers and washing machines (Phu, 2020). The more energy-intensive appliancies, the higher the household’s demand for electricity. Electricity demand is also affected by the level of technology, with newer and upgraded devices being more energy efficient.

Column 1 of table 5 reports also a number of expenditure elasticities that are above 1, indicating that the response of these items to a change in the households’ expenditure (or income) is more than proportional. Moreover, the higher the expenditure elasticity, the more sensitive the household demand is to income changes. This concerns, in order, household equipment, post and communication, clothing and accessories, transport, and medical and health services.

The current telecom market in Vietnam is quite competitive and diversified, covering cheaper and subsidiesed public access to telephones and internet, as well as private providers. Mobile technology also developed fast, and better and faster telecom services are more likely to be delivered by private companies. Shifting from low- to middle-income, households have gretaer margin in deciding how much of their budget they want to spend on these services, and the higher the income the higher is the willingess to have fast, broad-coverage and more expensive mobile and internet services. However, contrary to electricity or transport, once basic requirements of telecommunication are meet, these services provide luxury entertainment that is very responsive to income changes.

In our data set transport reflects mainly the household’s owning of vehicles (e.g. cars, motorbikes, bicicles) rather than expenditure on train, bus or airplane tickets. Therefore, it is likely that our results capture the income elasticity of passing from lower-quality, cheap vehicles to modern, fully equiped, powerful ones. A typical means of tranport in Vietnam is small motorbikes or scooters which are flexible and easier to use in cities with heavy traffic. However, the development of motorways is inducing also an increase in registered passenger cars, which increased by 437.5% between 2008 and 2019, while the number of registered motorcycles increased by 145.5% (ASEAN data).

> 4 There is a modest degree of self-production of food among the poorer households, which might explain the relatively low level of food expenditure.

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