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Cyclical income risk in Great Britain

Author

Listed:
  • Konstantinos Angelopoulos
  • Spyridon Lazarakis
  • Jim Malley

Abstract

This paper establishes new evidence on the cyclical behaviour of household income risk in Great Britain and assesses the role of social insurance policy in mitigating against this risk. We address these issues using the British Household Panel Survey (1991-2008) by decomposing stochastic idiosyncratic income into its transitory, persistent and fixed components. We then estimate how income risk, measured by the variance and the skewness of the probability distribution of shocks to the persistent component, varies between expansions and contractions of the aggregate economy. We first find that the volatility and left-skewness of these shocks is a-cyclical and counter-cyclical respectively. The latter implies a higher probability of receiving large negative income shocks in contractions. We also find that while social insurance (tax-benefits) policy reduces the levels of both measures of risk as well as the counter-cyclicality of the asymmetry measure, the mitigation effects work mainly via benefits.

Suggested Citation

  • Konstantinos Angelopoulos & Spyridon Lazarakis & Jim Malley, 2019. "Cyclical income risk in Great Britain," CESifo Working Paper Series 7594, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_7594
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp7594.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    household income risk; social insurance policy; aggregate fluctuations;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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