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Income and Consumption Risk: Evidence from France


  • Nicolas Pistolesi


In this paper, we draw life cycle inequality profiles for cohorts born between 1921 and 1975 and observed from 1974 to 2005 from a pseudo-panel of French households. While cross-sectional inequality has not changed much over the period, the within cohort inequality increases substantially with age. Using the interplay between income and consumption, we decompose the change in inequality into a permanent and a transitory component. The former, called income risk, measures shocks affecting income which are transmitted to consumption levels, while the latter affects income but can be smoothed and thus does not have an impact on the consumption distribution. We find that income risk increases with age while transitory shocks remain broadly constant over the lifetime. The decomposition sheds lights on the diverging trends over time between income and consumption inequality. Consumption inequality has increased since the middle of the nineties because the population ages and permanent shocks increase with age, while income inequality has not changed much because of negative transitory shocks that compensated the permanents shocks.

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  • Nicolas Pistolesi, 2014. "Income and Consumption Risk: Evidence from France," Annals of Economics and Statistics, GENES, issue 113-114, pages 347-377.
  • Handle: RePEc:adr:anecst:y:2014:i:113-114:p:347-377 DOI: 10.15609/annaeconstat2009.113-114.347

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    1. Beaudry, Paul & Portier, Franck, 2005. "The "news view" of economic fluctuations: Evidence from aggregate Japanese data and sectoral US data," Journal of the Japanese and International Economies, Elsevier, vol. 19(4), pages 635-652, December.
    2. Paul Beaudry & Franck Portier, 2006. "Stock Prices, News, and Economic Fluctuations," American Economic Review, American Economic Association, vol. 96(4), pages 1293-1307, September.
    3. Paul Beaudry & Bernd Lucke, 2010. "Letting Different Views about Business Cycles Compete," NBER Chapters,in: NBER Macroeconomics Annual 2009, Volume 24, pages 413-455 National Bureau of Economic Research, Inc.
    4. Fève, Patrick & Matheron, Julien & Sahuc, Jean-Guillaume, 2009. "On the dynamic implications of news shocks," Economics Letters, Elsevier, vol. 102(2), pages 96-98, February.
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