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Welfare-based income insecurity in the us and germany: evidence from harmonized panel data

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  • Rohde, Nicholas
  • Tang, Kam Ki
  • D’Ambrosio, Conchita
  • Osberg, Lars
  • Rao, Prasada

Abstract

This paper develops normative approaches for measuring individual-level income insecurity. Using concepts derived from Expected Utility Theory and Prospect Theory, we build a suite of measures designed to capture various facets of psychologically distressing income risk. We present an application for the US and Germany from 1993–2013, employing conditionally heteroskedastic fixed-effects models to generate predictive densities for future incomes. Our results reveal much higher levels of income risk in the US relative to Germany, which can be mostly attributed to a higher level of autonomous, time-invariant volatility. State-by-state variations in liberal/conservative political administrations partially explain our results, and we find some evidence that trade exposure is a contributing factor in the US.

Suggested Citation

  • Rohde, Nicholas & Tang, Kam Ki & D’Ambrosio, Conchita & Osberg, Lars & Rao, Prasada, 2020. "Welfare-based income insecurity in the us and germany: evidence from harmonized panel data," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 226-243.
    • Handle: RePEc:eee:jeborg:v:176:y:2020:i:c:p:226-243
    DOI: 10.1016/j.jebo.2020.04.023
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    More about this item

    Keywords

    Economic insecurity; Income risk; Panel data; Reference dependent utility;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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