Attanasio and Lechene (2002) estimate Engel curves using municipality wage as an instrument for consumption. They find more reasonable results than when household income is used as an instrument. We follow them and use municipality wage as an instrument for total consumption. This obviously precludes the introduction of community fixed effects. In this case the main identification assumption is that municipality wage is not correlated with the error term once the effect of other covariates have been taken into account. For instance, it is likely that municipality with higher wages have also better access to public infrastructure and sanitary conditions
