How Urban Households' Consumption Reflects Their Habits: Evidence From Taiwan

Abstract

This paper utilizes data from the Survey of Family Income and Expenditure in Taiwan to discuss habit formation, encompassing internal and external habits, in urban household consumption behaviors. Specifically, we examine high-visibility consumption commodities and narrower spatial reference groups to capture external habits among urban households. Our empirical findings reveal evidence of habit formation in consumption behaviors among urban households in Taiwan. We observe the durability of some expenditure items for internal habits. Additionally, household consumption is influenced by the consumption of reference groups, indicating external habits. This influence is particularly pronounced within highly visible commodities, such as alcoholic beverages, tobacco, beauty, apparel, and recreation and culture. Most of these are more prominent for households facing narrower spatial reference groups, with tobacco being especially notable, highlighting potential public health concerns associated with localized social interactions. Furthermore, the effect of external habits on recreation and culture appears across wider spatial contexts, suggesting a more generalized external influence. These findings carry important implications for public health and the labor market, warranting attention from policymakers.