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Consumption Inequality and Intra-Household Allocations

  • Jeremy Lise


    (Department of Economics, Queen's University)

  • Shannon Seitz


    (Department of Economics, Queen\'s University)

The current literature on consumption inequality treats all adults within the household equally, making the implicit assumption that all consumption inequality is between, not within, households. However, increased marital sorting on earnings and the subsequent rise in the share of women's income in the household may have important implications for consumption inequality measured at the individual level. We use an extension of the collective framework of Chiappori to estimate a rule for assigning resources to individual household members. We then construct a measure of individual level inequality by looking at implied changes in intra-household allocations and explore the implications of our framework for the measurement of individual level, versus household level, consumption inequality. Our analysis, which is based on households comprising one or two adults, suggests that the conventional approach of ignoring intra-household allocations underestimates the level of cross-sectional consumption inequality by 30% and overstates the trend by two-thirds. 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 in the UK since the 1970s.

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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1019.

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Length: 41 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:qed:wpaper:1019
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  1. Garry Barrett & Thomas Crossley & Christopher Worswick, 1999. "Consumption and Income Inequality in Australia," CEPR Discussion Papers 404, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  2. Richard Blundell & Pierre-André Chiappori & Thierry Magnac & Costas Meghir, 1998. "Collective labour supply: heterogeneity and non-participation," IFS Working Papers W98/20, Institute for Fiscal Studies.
  3. Pierre-André Chiappori & Richard Blundell & Costas Meghir, 2002. "Collective labour supply with children," IFS Working Papers W02/08, Institute for Fiscal Studies.
  4. 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.
  5. Thomas F. Crossley & Krishna Pendakur, 2002. "Consumption Inequality," Department of Economics Working Papers 2002-09, McMaster University.
  6. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, April.
  7. Frederic VERMEULEN, 2000. "Collective Household Models: Principles and Main Results," Working Papers Department of Economics ces0028, KU Leuven, Faculty of Economics and Business, Department of Economics.
  8. Haddad, Lawrence & Kanbur, Ravi, 1989. "How serious is the neglect of intrahousehold inequality ?," Policy Research Working Paper Series 296, The World Bank.
  9. 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.
  10. Martin Browning & P.A. Chiappori, 1996. "Efficient Intra-Household Allocations - A General Characterization and Empirical Tests," Discussion Papers 96-10, University of Copenhagen. Department of Economics.
  11. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
  12. 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.
  13. Martin Browning & Pierre-André Chiappori & Arthur Lewbel, 2013. "Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1267-1303.
  14. Browning, M. & Bourguignon, F. & Chiappori, P.A. & Lechene, V., 1992. "Incomes and Outcomes: A structural Model of Intra-Household Allocation," DELTA Working Papers 92-23, DELTA (Ecole normale supérieure).
  15. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, April.
  16. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
  17. Jay H. Hong & Jose-Victor Rios-Rull, 2004. "Life insurance and household consumption," Working Papers 04-10, Federal Reserve Bank of Philadelphia.
  18. Pierre-Andre Chiappori & Bernard Fortin & Guy Lacroix, 2002. "Marriage Market, Divorce Legislation, and Household Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 37-72, February.
  19. Shannon N. Seitz, 2002. "Accounting for Racial Differences in Marriage and Employment," Working Papers 1009, Queen's University, Department of Economics.
  20. Fernandez, R. & Rogerson, R., 1999. "Sorting and Long-Run Inequality," Working Papers 99-22, C.V. Starr Center for Applied Economics, New York University.
  21. 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.
  22. 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.
  23. Haddad, Lawrence & Kanbur, Ravi, 1990. "Are better off households more unequal or less unequal ?," Policy Research Working Paper Series 373, The World Bank.
  24. 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.
  25. Donni, Olivier, 2005. "Collective Female Labour Supply: Theory and Application," IZA Discussion Papers 1506, Institute for the Study of Labor (IZA).
  26. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
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