Consumption Insurance or Consumption Mobility
The theory of full consumption insurance posits that households are insulated from all idiosyncratic shocks so that the ratio of the marginal utilities of consumption of any two households is constant over time. Consumption insurance therefore implies absence of consumption mobility between any two time periods. This implication requires knowledge of the evolution of the entire consumption distribution, not just its mean as in standard tests of complete markets. We test this unexplored prediction of the theory using a panel drawn from the Bank of Italy Survey of Household Income and Wealth. We design an appropriate non-parametric test and find substantial mobility of consumption even controlling for possible preference shifts and measurement error in consumption. The findings strongly reject the theory of full consumption insurance.
|Date of creation:||May 1999|
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- Andrea Brandolini, 1999.
"The Distribution of Personal Income in Post-War Italy: Source Description, Data Quality, and the Time Pattern of Income Inequality,"
Temi di discussione (Economic working papers)
350, Bank of Italy, Economic Research and International Relations Area.
- Andrea Brandolini, 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Data Quality, and the Time Pattern of Income Inequality," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 58(2), pages 183-239, September.
- Brandolini, A., 1999. "The Distribution of Personal Income in Post-War Italy: Source Description, Date Quality, and the Time Pattern of Income Inequality," Papers 350, Banca Italia - Servizio di Studi.
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NBER Working Papers
4328, National Bureau of Economic Research, Inc.
- Robert M. Townsend, .
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University of Chicago - Population Research Center
91-3a, Chicago - Population Research Center.
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"Relative Wage Movements and the Distribution of Consumption,"
NBER Working Papers
4771, National Bureau of Economic Research, Inc.
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- Cochrane, John H, 1991. "A Simple Test of Consumption Insurance," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 957-76, October.
- Hayashi, Fumio & Altonji, Joseph & Kotlikoff, Laurence, 1996. "Risk-Sharing between and within Families," Econometrica, Econometric Society, vol. 64(2), pages 261-94, March.
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- Abhijit V. Banerjee & Andrew F. Newman, 1991. "Risk-Bearing and the Theory of Income Distribution," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 211-235.
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