Empirical studies of consumer demand show that budget shares vary considerably with income. This variation can mainly be attributed to two economic effects: An income effect (consumers change their budget shares when their income changes) or a taste effect (consumers with different incomes have different tastes). This paper estimates a system of consumer budget share functions using a unique panel data set on consumer expenditures, thus taking account of unobservable individual heterogeneity in tastes. Our main finding is that the variation in budget shares seems to be caused by a combination of the income effect and the taste effect for most commodities.