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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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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1019.pdf
File Function: First version 2004
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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. 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.
  2. Richard Blundell & Pierre-Andre Chiappori & Thierry Magnac & Costas Meghir, 2002. "Collective Labor Supply: Heterogeneity and Nonparticipation," Research Unit Working Papers 0210, Laboratoire d'Economie Appliquee, INRA.
  3. repec:cup:cbooks:9780521296762 is not listed on IDEAS
  4. Fernandez, R. & Rogerson, R., 1999. "Sorting and Long-Run Inequality," Working Papers 99-22, C.V. Starr Center for Applied Economics, New York University.
  5. Browning, M. & Chiappori, P.A., 1994. "Efficient Intra-Household allocations: A General Characterization and Empirical Tests," DELTA Working Papers 94-16, DELTA (Ecole normale supérieure).
  6. 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).
  7. 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.
  8. Haddad, L. & Kanbur, R., 1989. "How Serious Is The Neglectof Intra-Household Inequality?," Papers 450, Stockholm - International Economic Studies.
  9. Pierre-André Chiappori & Richard Blundell & Costas Meghir, 2002. "Collective labour supply with children," IFS Working Papers W02/08, Institute for Fiscal Studies.
  10. Dirk Kreuger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," Working Papers 02-15, New York University, Leonard N. Stern School of Business, Department of Economics.
  11. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  12. Martin Browning & Pierre-André Chiappori & Arthur Lewbel, . "Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power," CAM Working Papers 2003-12, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics, revised Dec 2003.
  13. Kanbur, Ravi & Haddad, Lawrence, 1994. "Are Better Off Households More Unequal or Less Unequal?," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 445-58, July.
  14. Frederic Vermeulen, 2000. "Collective household models: principles and main results," Public Economics Working Paper Series ces0028, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
  15. Richard Blundell & Ian Preston, 1998. "Consumption Inequality And Income Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 603-640, May.
  16. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
  17. repec:ner:tilbur:urn:nbn:nl:ui:12-3106943 is not listed on IDEAS
  18. Shannon N. Seitz, 2002. "Accounting for Racial Differences in Marriage and Employment," Working Papers 1009, Queen's University, Department of Economics.
  19. 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.
  20. 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.
  21. Thomas F. Crossley & Krishna Pendakur, 2002. "Consumption Inequality," Department of Economics Working Papers 2002-09, McMaster University.
  22. 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.
  23. 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.
  24. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2.
  25. Olivier Donni, 2001. "Collective Female Labor Supply: Theory and Application," Cahiers de recherche CREFE / CREFE Working Papers 141, CREFE, Université du Québec à Montréal.
  26. 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.
  27. 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.
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