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Intertemporal Choice and Inequality

  • Deaton, A.
  • Paxson, C.

The permanent income hypothesis implies that, for any cohort of people, inequality in consumption and income should grow with age, a prediction that is here confirmed using data from eleven years of household survey data from the United States, twenty-two years from Great Britain, and fourteen years from Taiwan. In the permanent income hypothesis, the increase in inequality reflects the cumulative effect of luck on consumption. Other models of intertemporal choice--such as those with strong precautionary motives or liquidity constraints--can limit or even prevent the spread of inequality, as can insurance arrangements that share risk across individuals. Copyright 1994 by University of Chicago Press.

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Paper provided by Princeton, Woodrow Wilson School - Development Studies in its series Papers with number 168.

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Length: 31 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:fth:priwds:168
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PRINCETON UNIVERSITY, WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, PRINCETON NEW- JERSEY 08542 U.S.A.

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