Although the Latvian economy has returned to positive growth path since
2010, in society the problems remain: high long-term unemployment rate and relatively
low average level of income. Government’s reluctance to reduce VAT for certain food
groups can be understood – although this may improve the level of welfare in lowincome
households, simultaneously it could reduce the social security benefits for the
same households. However, as has been shown in other studies, the level of income
affects the healthy food consumption and thus also public health, and via this the
economic long-run growth, too.
Therefore, the aim of this study is to assess which food group consumption is more
sensitive to the level of income and price changes. The study is based on „ Household
Budget Survey 2010” by CSB which contains 3798 Latvia’s household survey data. It
was calculated three indicators: (1) the households’ available income for consumption
per equivalent consumers, (2) the average price of product or product groups, (3) real
consumption of product or product group by equivalent consumer. For each of the
product are evaluated two models. The first model is used to estimate elasticity of
demand for product dependent on households’ available income for consumption. The
second, to estimate elasticity of demand dependent on product average prices.
Results show that if the introduction of the reduced VAT rate for certain food groups
is politically supported, then they could be: bread, fruit and vegetables, fish and fish
products.