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Consumption inequality and intra-household allocations

  • Jeremy Lise

    ()

    (Institute for Fiscal Studies and University College London)

  • Shannon Seitz

    (Institute for Fiscal Studies)

The consumption literature uses adult equivalence scales to measure individual level inequality. This practice imposes the assumption that there is no within household inequality. In this paper, we show that ignoring consumption inequality within households produces misleading estimates of inequality along two dimensions. First, the use of adult equivalence scales underestimates the level of cross sectional consumption inequality by 30 percent, as large differences in the earnings of husbands and wives translate into large differences in consumption allocations within households. Second, the rise in inequality since the 1970s is overstated by almost two-thirds: within household inequality declined over time as the share of income provided by wives increased. Our findings also indicate that increases in marital sorting on wages and hours worked can simultaneously explain virtually all of the decline in within household inequality and a substantial fraction of the rise in between household inequality for one and two adult households in the UK since the 1970s.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W07/09.

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Date of creation: 25 Jul 2007
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Handle: RePEc:ifs:ifsewp:07/09
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  1. Richard Blundell & Ian Preston, 1998. "Consumption Inequality and Income Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 603-640.
  2. Jay H. Hong & José-Víctor Ríos-Rull, 2012. "Life Insurance and Household Consumption," American Economic Review, American Economic Association, vol. 102(7), pages 3701-30, December.
  3. Richard Blundell & Pierre-Andre Chiappori & Thierry Magnac & Costas Meghir, 2007. "Collective Labour Supply: Heterogeneity and Non-Participation," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 417-445.
  4. Pierre-André Chiappori & Richard Blundell & Costas Meghir, 2002. "Collective labour supply with children," IFS Working Papers W02/08, Institute for Fiscal Studies.
  5. Chiappori, Pierre-André & Fortin, Bernard & Lacroix, Guy, 2001. "Marriage Market, Divorce Legislation and Household Labor Supply," Cahiers de recherche 0103, Université Laval - Département d'économique.
  6. Fernández, Raquel & Rogerson, Richard, 2000. "Sorting and Long-Run Inequality," CEPR Discussion Papers 2352, C.E.P.R. Discussion Papers.
  7. Martin Browning & Pierre-Andre Chiappori, 2006. "Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power," Economics Series Working Papers 289, University of Oxford, Department of Economics.
  8. Haddad, Lawrence & Kanbur, Ravi, 1990. "Are better off households more unequal or less unequal ?," Policy Research Working Paper Series 373, The World Bank.
  9. Shannon N. Seitz, 2002. "Accounting for Racial Differences in Marriage and Employment," Working Papers 1009, Queen's University, Department of Economics.
  10. Dirk Krueger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," NBER Working Papers 9202, National Bureau of Economic Research, Inc.
  11. Martin Browning & Pierre-Andre Chiappori, 1994. "Efficient Intra-Household Allocations: a General Characterization and Empirical Tests," Department of Economics Working Papers 1994-02, McMaster University.
  12. Haddad, Lawrence & Kanbur, Ravi, 1989. "How serious is the neglect of intrahousehold inequality ?," Policy Research Working Paper Series 296, The World Bank.
  13. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, june. pag.
  14. Vermeulen, Frederic, 2002. " Collective Household Models: Principles and Main Results," Journal of Economic Surveys, Wiley Blackwell, vol. 16(4), pages 533-64, September.
  15. Thomas F. Crossley & Krishna Pendakur, 2002. "Consumption Inequality," Department of Economics Working Papers 2002-09, McMaster University.
  16. Browning, Martin & Francois Bourguignon & Pierre-Andre Chiappori & Valerie Lechene, 1994. "Income and Outcomes: A Structural Model of Intrahousehold Allocation," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1067-96, December.
  17. Olivier Donni, 2007. "Collective female labour supply: theory and application," Economic Journal, Royal Economic Society, vol. 117(516), pages 94-119, 01.
  18. Orazio Attanasio & Erich Battistin & Hidehiko Ichimura, 2004. "What Really Happened to Consumption Inequality in the US?," NBER Working Papers 10338, National Bureau of Economic Research, Inc.
  19. Erich Battistin, 2002. "Errors in Survey Reports of Consumption Expenditures," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 C4-2, International Conferences on Panel Data.
  20. Manser, Marilyn & Brown, Murray, 1980. "Marriage and Household Decision-Making: A Bargaining Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 31-44, February.
  21. Barrett, Garry F & Crossley, Thomas F & Worswick, Christopher, 2000. "Consumption and Income Inequality in Australia," The Economic Record, The Economic Society of Australia, vol. 76(233), pages 116-38, June.
  22. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, june. pag.
  23. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  24. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
  25. Pendakur, Krishna, 1998. "Changes in Canadian Family Income and Family Consumption Inequality between 1978 and 1992," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 44(2), pages 259-83, June.
  26. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
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