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Consumption Inequality and Partial Insurance

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Author Info
Richard Blundell
Luigi Pistaferri
Ian Preston

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Abstract

This paper examines the link between income and consumption inequality. We create panel data on consumption for the Panel Study of Income Dynamics using an imputation procedure based on food demand estimates from the Consumer Expenditure Survey. We document a disjuncture between income and consumption inequality over the 1980s and show that it can be explained by changes in the persistence of income shocks. We find some partial insurance of permanent shocks, especially for the college educated and those near retirement. We find full insurance of transitory shocks except among poor households. Taxes, transfers, and family labor supply play an important role in insuring permanent shocks. (JEL D12, D31, D91, E21)

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File URL: http://hdl.handle.net/10.1257/aer.98.5.1887
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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 98 (2008)
Issue (Month): 5 (December)
Pages: 1887-1921
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Handle: RePEc:aea:aecrev:v:98:y:2008:i:5:p:1887-1921

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-62, December. [Downloadable!] (restricted)
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  2. Altonji, Joseph G & Siow, Aloysius, 1987. "Testing the Response of Consumption to Income Changes with (Noisy) Panel Data," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 293-328, May. [Downloadable!] (restricted)
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  3. Alan J. Auerbach & Daniel Feenberg, 2000. "The Significance of Federal Taxes as Automatic Stabilizers," NBER Working Papers 7662, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Altonji, Joseph G. & Martins, Ana Paula & Siow, Aloysius, 2002. "Dynamic factor models of consumption, hours and income," Research in Economics, Elsevier, vol. 56(1), pages 3-59, June. [Downloadable!] (restricted)
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  5. Fernando Alvarez & Urban J. Jermann, 2000. "Efficiency, Equilibrium, and Asset Pricing with Risk of Default," Econometrica, Econometric Society, vol. 68(4), pages 775-798, July.
  6. Orazio P. Attanasio & Guglielmo Weber, 1994. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," NBER Working Papers 4795, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Attanasio, Orazio & Rios-Rull, Jose-Victor, 2000. "Consumption smoothing in island economies: Can public insurance reduce welfare?," European Economic Review, Elsevier, vol. 44(7), pages 1225-1258, June. [Downloadable!] (restricted)
  8. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March. [Downloadable!] (restricted)
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  9. Altug, Sumru & Miller, Robert A, 1990. "Household Choices in Equilibrium," Econometrica, Econometric Society, vol. 58(3), pages 543-70, May. [Downloadable!] (restricted)
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  10. Orazio Attanasio & Erich Battistin & Hidehiko Ichimura, 2004. "What Really Happened to Consumption Inequality in the US?," NBER Working Papers 10338, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-16.

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