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Abstract

Consider the problem of measuring long-run household welfare and investigating welfare orderings from cross-section data. Life-cycle theories emphasize that consumption is allocated intertemporally on the basis of a long-term concept of resources, which differs from household income. Expenditure is also subject to transitoriness because diaries on spending are kept for a period of two to four weeks. Via joint modelling of household income and expenditure, we provide bounds for the deficit curve of lifecycle incomes using two distinct predictors of this unobservable. A third predictor generates a deficit curve also lying within these bounds.

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File URL: http://www.hec.unil.ch/deep/textes/01.12.pdf
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Bibliographic Info

Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 01.12.

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Length: 21 pages + fig.
Date of creation: Dec 2001
Date of revision:
Publication status: Published in Economica, vol. 72, August 2005, pp. 497-514
Handle: RePEc:lau:crdeep:01.12

Contact details of provider:
Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.05
Email:
Web page: http://www.hec.unil.ch/deep/publications/cahiers/series
More information through EDIRC

Related research

Keywords: social welfare orderings; life-cycle income; household income and expenditure; deficit curves;

Other versions of this item:

Find related papers by JEL classification:

• C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
• D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
• I32 - Health, Education, and Welfare - - Welfare and Poverty - - - Measurement and Analysis of Poverty

This paper has been announced in the following NEP Reports:

• NEP-ALL-2002-02-10 (All new papers)

References

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1. Milton Friedman & Simon Kuznets, 1954. "Income from Independent Professional Practice," NBER Books, National Bureau of Economic Research, Inc, number frie54-1, October.
2. Martin Browning & Thomas F. Crossley, 2000. "The Life Cycle Model of Consumption and Saving," Social and Economic Dimensions of an Aging Population Research Papers 28, McMaster University.
   
   • Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
   • Martin Browning & Thomas F. Crossley, 2001. "The lifecycle model of consumption and saving," IFS Working Papers W01/15, Institute for Fiscal Studies.
3. 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.
   
   • Ramsès H. ABUL NAGA & Enrico BOLZANI, 2006. "Poverty and Permanent Income: A Methodology for Cross-Section Data," Annales d'Economie et de Statistique, ENSAE, issue 81, pages 195-223.
4. Dagum, Camilo, 1990. "On the relationship between income inequality measures and social welfare functions," Journal of Econometrics, Elsevier, vol. 43(1-2), pages 91-102.
5. Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July.
6. Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
7. Foster, James E & Shorrocks, Anthony F, 1988. "Poverty Orderings," Econometrica, Econometric Society, vol. 56(1), pages 173-77, January.
8. Anderson, Gordon, 1996. "Nonparametric Tests of Stochastic Dominance in Income Distributions," Econometrica, Econometric Society, vol. 64(5), pages 1183-93, September.
9. Jacques Silber, 1998. "On Inequality in Consumption Expenditures. The Case of Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(IV), pages 545-564, December.
10. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
11. 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.
    
    • Ramses H. Abul Naga & Robin Burgess, 1997. "Prediction and Determination of Household Permanent Income," STICERD - Distributional Analysis Research Programme Papers 32, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
12. Cowell, F.A., 2000. "Measurement of inequality," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 2, pages 87-166 Elsevier.
13. Davidson, Russell & Duclos, Jean-Yves, 1998. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," Cahiers de recherche 9805, Université Laval - Département d'économique.
    
    • Russell Davidson & Jean-Yves Duclos, 2000. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," Econometrica, Econometric Society, vol. 68(6), pages 1435-1464, November.
    • Davidson, R. & Duclos, J.-Y., 1998. "Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality," G.R.E.Q.A.M. 98a14, Universite Aix-Marseille III.
14. Attfield, C L F, 1976. "Estimation of the Structural Parameters in a Permanent Income Model," Economica, London School of Economics and Political Science, vol. 43(171), pages 247-54, August.
15. Robert E. Hall & Frederic S. Mishkin, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
    
    • Hall, Robert E & Mishkin, Frederic S, 1982. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," Econometrica, Econometric Society, vol. 50(2), pages 461-81, March.
16. Daniel T. Slesnick, 1998. "Empirical Approaches to the Measurement of Welfare," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2108-2165, December.
17. Davies, James & Hoy, Michael, 1995. "Making Inequality Comparisons When Lorenz Curves Intersect," American Economic Review, American Economic Association, vol. 85(4), pages 980-86, September.
18. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.

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Cited by:

1. Riccardo Massari, 2005. "A Measure of Welfare Based on Permanent Income Hypothesis: An Application on Italian Households Budgets," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 64(1), pages 55-92, September.

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