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Consumption Inequality, Income Uncertainty and Insurance

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Author Info

  • Luigi Pistaferri
  • Richard Blundell
  • Ian Preston

Abstract

This paper uses panel data on household consumption and income to describe the transmission of income inequality into consumption inequality. We do this by contrasting shifts in the cross-sectional distribution of income growth with shifts in the cross-sectional distribution of consumption growth. Our aim is to evaluate the time series pattern of permanent income inequality and to assess the degree of insurance. We combine panel data on income from the PSID with consumption data from repeated CEX cross-sections. The results point to some partial insurance but reject the complete market restrictions. We find a greater degree of insurance for transitory shocks and differences in the degree of insurance over time and across demographic groups. We also document the importance of durables and of taxes and transfers as a means of insurance

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 215.

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Date of creation: 2004
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Handle: RePEc:red:sed004:215

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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Related research

Keywords: Consumption Dynamics; Income Shocks; Inequality; Insurance;

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Cited by:
  1. Giovanni Gallipoli & Laura Turner, 2009. "Household Responses to Individual Shocks: Disability and Labor Supply," Working Paper Series 04_09, The Rimini Centre for Economic Analysis.
  2. Leonardi, Marco, 2003. "Earnings Instability of Job Stayers and Job Changers," IZA Discussion Papers 946, Institute for the Study of Labor (IZA).
  3. Forslund, Anders & Nordström Skans, Oskar, 2006. "Swedish youth labour market policies revisited," Working Paper Series 2006:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  4. Stéphane Bonhomme & Jean-Marc Robin, 2009. "Assessing the Equalizing Force of Mobility Using Short Panels: France, 1990-2000," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 63-92.

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