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A Measure of Welfare Based on Permanent Income Hypothesis: An Application on Italian Households Budgets

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  • Riccardo Massari

    ()
    (University "La Sapienza", Rome)

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    Abstract

    The measurement of the actual household welfare is possibly the main problem in welfare analysis. Since welfare is not directly observable, researchers have to find a proxy to measure it. The aim of this work is to find a measure of welfare based on cross-sectional data. The measure proposed is a linear combination of observable indicators. Using data from the Bank of Italy SHIW, this paper provides some evidence that, under assumptions that are not very restrictive, this measure could properly depict the actual ranking of households in terms of their economic status.

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    File URL: ftp://ftp.gde.unibocconi.it/gde_articles/2005/GDE_V64_N1_P55-92.pdf
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    Bibliographic Info

    Article provided by GDE (Giornale degli Economisti e Annali di Economia), Bocconi University in its journal Giornale degli Economisti e Annali di Economia.

    Volume (Year): 64 (2005)
    Issue (Month): 1 (September)
    Pages: 55-92

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    Handle: RePEc:gde:journl:gde_v64_n1_p55-92

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    Related research

    Keywords: living standard; factor analysis; kernel density; welfare measurement;

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    References

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    1. Ramses ABUL NAGA & Robin BURGESS, 1997. "Prediction and Determination of Household Permanent Income," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9705, Université de Lausanne, Faculté des HEC, DEEP.
    2. Shorrocks, A F, 1978. "The Measurement of Mobility," Econometrica, Econometric Society, vol. 46(5), pages 1013-24, September.
    3. Rosati, Nicoletta, 2003. "How has economic inequality evolved over the past two decades? A look at the Italian experience," Research in Economics, Elsevier, vol. 57(2), pages 93-122, June.
    4. Kay, J. A. & Keen, M. J. & Morris, C. N., 1984. "Estimating consumption from expenditure data," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 169-181.
    5. Ramses H. Abul Naga, 1994. "Identifying the Poor: A Multiple Indicator Approach," STICERD - Distributional Analysis Research Programme Papers 09, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    6. Muellbauer, John, 1994. "The Assessment: Consumer Expenditure," Oxford Review of Economic Policy, Oxford University Press, vol. 10(2), pages 1-41, Summer.
    7. Patterson, K D, 1992. "The Service Flow from Consumption Goods with an Application to Friedman's Permanent Income Hypothesis," Oxford Economic Papers, Oxford University Press, vol. 44(2), pages 289-305, April.
    8. Ramses H. ABUL NAGA, 2001. "Social Welfare Orderings: A Life-Cycle Perspective," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 01.12, Université de Lausanne, Faculté des HEC, DEEP.
    9. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
    10. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
    11. Richard Breen & Pasi Moisio, 2004. "Poverty dynamics corrected for measurement error," Journal of Economic Inequality, Springer, vol. 2(3), pages 171-191, July.
    12. Foster, James & Greer, Joel & Thorbecke, Erik, 1984. "A Class of Decomposable Poverty Measures," Econometrica, Econometric Society, vol. 52(3), pages 761-66, May.
    13. Richard Blundell & Ian Preston, 1994. "Income or consumption in the measurement of inequality and poverty?," IFS Working Papers W94/12, Institute for Fiscal Studies.
    14. Chaudhuri, Shubham & Ravallion, Martin, 1994. "How well do static indicators identify the chronically poor?," Journal of Public Economics, Elsevier, vol. 53(3), pages 367-394, March.
    15. Ramses H. ABUL NAGA & Enrico BOLZANI, 2000. "Poverty and Permanent Income : A Methodology for Cross-Section Data," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 00.26, Université de Lausanne, Faculté des HEC, DEEP.
    16. Biewen, Martin, 2002. "Bootstrap inference for inequality, mobility and poverty measurement," Journal of Econometrics, Elsevier, vol. 108(2), pages 317-342, June.
    17. Ramses H. ABUL NAGA, 1996. "Prediction and Sufficiency in the Model of Factor Analysis," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9616, Université de Lausanne, Faculté des HEC, DEEP.
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