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Consumption inequality across heterogeneous families

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  • Theloudis, Alexandros

Abstract

What does preference heterogeneity imply for consumption inequality? This paper studies the link from wage to consumption inequality within a lifecycle model of consumption and family labor supply. Its distinctive feature is that households have general heterogeneous preferences over consumption and labor supply. The paper shows identification of the joint distribution of unobserved household preferences separately from the observed distributions of incomes and outcomes. Estimation on data from the Panel Study of Income Dynamics in the US reveals substantial unexplained heterogeneity in consumption preferences but little unexplained heterogeneity in labor supply preferences. Preference heterogeneity accounts for about a third of consumption inequality in recent years and implies, on average, lower partial insurance of wage shocks compared to recent studies in the literature.

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  • Theloudis, Alexandros, 2021. "Consumption inequality across heterogeneous families," European Economic Review, Elsevier, vol. 136(C).
  • Handle: RePEc:eee:eecrev:v:136:y:2021:i:c:s0014292121001185
    DOI: 10.1016/j.euroecorev.2021.103765
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    1. Theloudis, Alexandros, 2021. "Consumption inequality across heterogeneous families," European Economic Review, Elsevier, vol. 136(C).

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    More about this item

    Keywords

    Unobserved preference heterogeneity; Family labor supply; Lifecycle model; Partial insurance; PSID;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D30 - Microeconomics - - Distribution - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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