(Answered) The spending allocation model is designed to explain The spending allocation model is designed to…

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➤ How is a spending allocation model constructed and estimated?
Analysts build models from household or government budget data, price indices, and demographic controls. They estimate demand systems—such as AIDS or share regressions—often using instruments to address endogeneity. Calibration or structural estimation maps theoretical parameters to observed shares, enabling counterfactual simulations and policy evaluation.