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Consumption Inequality, Income Uncertainty and Insurance

Author

Listed:
  • Luigi Pistaferri
  • Richard Blundell
  • Ian Preston

Abstract

This paper uses panel data on household consumption and income to describe the transmission of income inequality into consumption inequality. We do this by contrasting shifts in the cross-sectional distribution of income growth with shifts in the cross-sectional distribution of consumption growth. Our aim is to evaluate the time series pattern of permanent income inequality and to assess the degree of insurance. We combine panel data on income from the PSID with consumption data from repeated CEX cross-sections. The results point to some partial insurance but reject the complete market restrictions. We find a greater degree of insurance for transitory shocks and differences in the degree of insurance over time and across demographic groups. We also document the importance of durables and of taxes and transfers as a means of insurance

Suggested Citation

  • Luigi Pistaferri & Richard Blundell & Ian Preston, 2004. "Consumption Inequality, Income Uncertainty and Insurance," 2004 Meeting Papers 215, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:215
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    Citations

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    Cited by:

    1. Stéphane Bonhomme & Jean-Marc Robin, 2009. "Assessing the Equalizing Force of Mobility Using Short Panels: France, 1990-2000," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 63-92.
    2. David (David Patrick) Madden, 2000. "Was Ireland better off in 1994 than in 1987?," Working Papers 200011, School of Economics, University College Dublin.
    3. Giovanni Gallipoli & Laura Turner, 2009. "Household Responses to Individual Shocks: Disability and Labor Supply," Working Paper series 04_09, Rimini Centre for Economic Analysis.
    4. Leonardi, Marco, 2003. "Earnings Instability of Job Stayers and Job Changers," IZA Discussion Papers 946, Institute for the Study of Labor (IZA).
    5. Anders Forslund & Oskar Nordström Stans, 2006. "Swedish Youth Labour Market Policies Revisited," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 75(3), pages 168-185.

    More about this item

    Keywords

    Consumption Dynamics; Income Shocks; Inequality; Insurance;

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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