Unequal Expenditure Switching: Evidence from Switzerland.

This article investigates the unequal effects of changes in consumer prices—particularly import prices—on the cost of living across households with different incomes, using detailed Swiss data around the 2015 Swiss franc appreciation. It highlights that beyond differences in initial expenditure shares on imported goods, heterogeneous price elasticities of substitution between imported and domestic goods significantly shape welfare impacts, with lower-income households exhibiting substantially higher elasticities. Employing generalized non-homothetic constant elasticity of substitution (CES) preferences and two empirical approaches, the study finds that higher-income households are less responsive to price changes and thus suffer greater welfare losses from import price increases. Quantitative analysis shows that unequal expenditure switching amplifies welfare disparities, especially for large and dispersed price shocks, and that this mechanism contributes importantly to the distributional consequences of foreign price changes. The findings suggest that accounting for heterogeneous substitution patterns is crucial for understanding the distributional effects of trade-related price shocks on household welfare.