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The Evolution of Income Risk and Consumption Insurance in South Korea over the Last Two Decades

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  • Taehyun Ahn
  • Chung Gu Chee
  • Seonghoon Kim

Abstract

Using data from the Korea Labor Income Panel Study, we study the evolution of income risk and consumption insurance against transitory and permanent income shocks in South Korea over the last two decades. We find a decreasing trend in both income and consumption risks. Furthermore, we estimate that 47.6% of permanent income shocks and 9.8% of transitory income shocks pass through to consumption. We also provide evidence of substantial improvements in consumption insurance among the less educated and the older cohort nearing retirement. Our results suggest that recent developments of social safety net and welfare system may have played an important role in insuring income shocks in South Korea.

Suggested Citation

  • Taehyun Ahn & Chung Gu Chee & Seonghoon Kim, 2021. "The Evolution of Income Risk and Consumption Insurance in South Korea over the Last Two Decades," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(2), pages 328-351, April.
    • Handle: RePEc:bla:obuest:v:83:y:2021:i:2:p:328-351
    DOI: 10.1111/obes.12404
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    References listed on IDEAS

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    1. Greg Kaplan & Giovanni L. Violante, 2010. "How Much Consumption Insurance beyond Self-Insurance?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 53-87, October.
    2. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-467, June.
    3. Orazio Attanasio & Luigi Pistaferri, 2014. "Consumption Inequality over the Last Half Century: Some Evidence Using the New PSID Consumption Measure," American Economic Review, American Economic Association, vol. 104(5), pages 122-126, May.
    4. Chulhee Lee & Jieun Lee, 2017. "The Outlook and Challenges of Population Aging and Labor Market (in Korean)," Working Papers 2017-30, Economic Research Institute, Bank of Korea.
    5. David Grubb & Jae-Kap Lee & Peter Tergeist, 2007. "Addressing Labour Market Duality in Korea," OECD Social, Employment and Migration Working Papers 61, OECD Publishing.
    6. Richard Blundell & Ian Preston, 1998. "Consumption Inequality and Income Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 603-640.
    7. Joon Yong Jo, 2008. "Korea: Economic Development, Social Security and Productive Welfare," Palgrave Macmillan Books, in: James Midgley & Kwong-leung Tang (ed.), Social Security, the Economy and Development, chapter 7, pages 187-209, Palgrave Macmillan.
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    Cited by:

    1. Anastasia Petaykina, 2023. "Estimation of Sensitivity of Russian Household Consumption to Permanent and Transitory Income Shocks Using Kalman Filter," Russian Journal of Money and Finance, Bank of Russia, vol. 82(3), pages 110-127, September.
    2. Jiyeon An & Taehyun Ahn & Seonghoon Kim, 2025. "Is Subjective Well‐Being Insured Against Income Shocks? Evidence From 20‐Year Panel Data in South Korea," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 71(2), May.
    3. Cho, Yunho & Kim, Jiseob & Kim, Julie, 2025. "Why old-age poverty matters: Evidence from consumption responses to income shocks," Journal of Macroeconomics, Elsevier, vol. 86(C).

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