Why is Consumption More Log Normal Than Income? Gibrat's Law Revisited
AbstractSignificant departures from log normality are observed in income data, in violation of Gibrat's law. We identify a new empirical regularity, which is that the distribution of consumption expenditures across households is, within cohorts, closer to log normal than the distribution of income. We explain these empirical results by showing that the logic of Gibrat's law applies not to total income, but to permanent income and to maginal utility. These findings have important implications for welfare and inequality measurement, aggregation, and econometric model analysis.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 671.
Length: 36 pages
Date of creation: 06 Jul 2007
Date of revision:
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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
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Consumption; Income; Lognormal; Inequality; Gibrat.;
Other versions of this item:
- Erich Battistin & Richard Blundell & Arthur Lewbel, 2009. "Why Is Consumption More Log Normal than Income? Gibrat's Law Revisited," Journal of Political Economy, University of Chicago Press, vol. 117(6), pages 1140-1154, December.
- Erich Battistin & Richard Blundell & Arthur Lewbel, 2007. "Why is consumption more log normal than income? Gibrat's law revisited," IFS Working Papers W07/08, Institute for Fiscal Studies.
- D3 - Microeconomics - - Distribution
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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