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From Earnings Inequality to Consumption Inequality


  • Orazio Attanasio

    (Universita degli Studi di Trento)

  • Gabriella Berloffa

    (Universita degli Studi di Trento)

  • Richard Blundell

    (University College London and Institute for Fiscal Studies)

  • Ian Preston

    (University College London and Institute for Fiscal Studies)


This paper studies the paths from inequality in earnings to inequality in household consumption. We show that careful study of the evolution of the variances and covariances of earnings and consumption within cohorts across time can identify permanent and transitory shocks. We present an application to the evolution of inequality in the United Kingdom. We extend previous results to recognise separate earnings of partners in couples. Copyright Royal Economic Society 2002.

Suggested Citation

  • Orazio Attanasio & Gabriella Berloffa & Richard Blundell & Ian Preston, 2002. "From Earnings Inequality to Consumption Inequality," Economic Journal, Royal Economic Society, vol. 112(478), pages 52-59, March.
  • Handle: RePEc:ecj:econjl:v:112:y:2002:i:478:p:c52-c59

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    References listed on IDEAS

    1. Attanasio, Orazio & Davis, Steven J, 1996. "Relative Wage Movements and the Distribution of Consumption," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1227-1262, December.
    2. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    3. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    4. Moshe Buchinsky & Jennifer Hunt, 1999. "Wage Mobility In The United States," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 351-368, August.
    5. Richard Blundell & Ian Preston, 1998. "Consumption Inequality and Income Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 603-640.
    6. Mace, Barbara J, 1991. "Full Insurance in the Presence of Aggregate Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 928-956, October.
    7. Orazio Attanasio & Berloffa, Berloffa & Richard Blundell & Stephen Redding, 2002. "From wages to consumption inequality: tracking shocks," IFS Working Papers W02/20, Institute for Fiscal Studies.
    8. Campbell, John Y, 1993. "Intertemporal Asset Pricing without Consumption Data," American Economic Review, American Economic Association, vol. 83(3), pages 487-512, June.
    9. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
    10. David M. Cutler & Lawrence F. Katz, 1991. "Macroeconomic Performance and the Disadvantaged," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 1-74.
    11. Slesnick, Daniel T, 1993. "Gaining Ground: Poverty in the Postwar United States," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 1-38, February.
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    Cited by:

    1. Heshmati, Almas, 2004. "A Review of Decomposition of Income Inequality," IZA Discussion Papers 1221, Institute for the Study of Labor (IZA).
    2. John Pencavel, 2006. "A Life Cycle Perspective on Changes in Earnings Inequality among Married Men and Women," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 232-242, May.
    3. Richard Blundell & Luigi Pistaferri & Itay Saporta-Eksten, 2016. "Consumption Inequality and Family Labor Supply," American Economic Review, American Economic Association, vol. 106(2), pages 387-435, February.
    4. Athreya, Kartik & Tam, Xuan S. & Young, Eric R., 2009. "Unsecured credit markets are not insurance markets," Journal of Monetary Economics, Elsevier, vol. 56(1), pages 83-103, January.
    5. Adriaan S. Kalwij & Rob Alessie, 2007. "Permanent and transitory wages of British men, 1975-2001: year, age and cohort effects," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(6), pages 1063-1093.
    6. Emma Tominey, 2010. "The Timing of Parental Income and Child Outcomes: The Role of Permanent and Transitory Shocks," CEE Discussion Papers 0120, Centre for the Economics of Education, LSE.
    7. John Sabelhaus & David Johnson & Stephen Ash & David Swanson & Thesia I. Garner & John Greenlees & Steve Henderson, 2014. "Is the Consumer Expenditure Survey Representative by Income?," NBER Chapters,in: Improving the Measurement of Consumer Expenditures, pages 241-262 National Bureau of Economic Research, Inc.
    8. Antonio Cutanda, 2002. "La medición de la desigualdad a través de un modelo de elección intertemporal," Hacienda Pública Española, IEF, vol. 163(4), pages 93-117, December.
    9. Heathcote, Jonathan & Storesletten, Kjetil & Violante, Giovanni L, 2004. "The Cross-Sectional Implications of Rising Wage Inequality in the United States," CEPR Discussion Papers 4296, C.E.P.R. Discussion Papers.
    10. THELOUDIS Alexandros, 2017. "Consumption Inequality across Heterogeneous Families," LISER Working Paper Series 2017-18, LISER.
    11. R. Alessie & A.S. Kalwij, 2003. "Permanent and Transitory Wage Inequality of British Men, 1975-2001: Year, Age and Cohort Effects," Working Papers 03-04, Utrecht School of Economics.
    12. John Sabelhaus & David Johnson & Stephen Ash & Thesia Garner & John S. Greenlees & Steven W. Henderson & David Swanson, 2012. "Is the Consumer Expenditure Survey representative by income?," Finance and Economics Discussion Series 2012-36, Board of Governors of the Federal Reserve System (U.S.).
    13. Karen E. Dynan & Douglas W. Elmendorf & Daniel E. Sichel, 2006. "Financial innovation and the Great Moderation: what do household data say?," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    14. repec:use:tkiwps:044 is not listed on IDEAS
    15. Theloudis, Alexandros, 2011. "From income and consumption inequality to economic welfare inequality: the role of labor supply," MPRA Paper 37517, University Library of Munich, Germany.
    16. repec:aia:aiaswp:wp18 is not listed on IDEAS

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