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Consumption Inequality and Intra-Household Allocations

  • Shannon Seitz
  • Jeremy Lise

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. To illustrate this point, we use a collective model of household behaviour to estimate consumption inequality in the U.K. from 1968 to 2001. First, the use of adult equivalence scales underestimates the initial level of cross-sectional consumption inequality by 50%, as large differences in the earnings of husbands and wives translate into large differences in consumption allocations within households. Second, we estimate the rise in between-household inequality has been accompanied by an offsetting reduction in within-household inequality. Our findings also indicate that increases in marital sorting on wages and hours worked can simultaneously explain two-thirds of the decline in within-household inequality and between a quarter and one-half of the rise in between-household inequality for one and two adult households. Copyright 2011, Oxford University Press.

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Paper provided by Society for Economic Dynamics in its series 2005 Meeting Papers with number 448.

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Date of creation: 2005
Date of revision:
Handle: RePEc:red:sed005:448
Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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  1. 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.
  2. Frederic VERMEULEN, 2000. "Collective Household Models: Principles and Main Results," Center for Economic Studies - Discussion papers ces0028, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  3. Blundell, Richard & Chiappori, Pierre-André & Magnac, Thierry & Meghir, Costas, 2005. "Collective Labour Supply: Heterogeneity and Nonparticipation," IDEI Working Papers 373, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. 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.
  5. 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.
  6. Fernandez, R. & Rogerson, R., 1999. "Sorting and Long-Run Inequality," Working Papers 99-22, C.V. Starr Center for Applied Economics, New York University.
  7. Erich Battistin, 2003. "Errors in survey reports of consumption expenditures," IFS Working Papers W03/07, Institute for Fiscal Studies.
  8. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387, October.
  9. Donni, Olivier, 2005. "Collective Female Labour Supply: Theory and Application," IZA Discussion Papers 1506, Institute for the Study of Labor (IZA).
  10. Thomas F. Crossley & Krishna Pendakur, 2002. "Consumption Inequality," Department of Economics Working Papers 2002-09, McMaster University.
  11. 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.
  12. 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.
  13. Richard Blundell & Pierre-Andr� Chiappori & Costas Meghir, 2005. "Collective Labor Supply with Children," Journal of Political Economy, University of Chicago Press, vol. 113(6), pages 1277-1306, December.
  14. 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.
  15. Haddad, Lawrence & Kanbur, Ravi, 1990. "How Serious Is the Neglect of Intra-Household Inequality?," Economic Journal, Royal Economic Society, vol. 100(402), pages 866-81, September.
  16. 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.
  17. 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.
  18. 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.
  19. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, October.
  20. 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.
  21. 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.
  22. 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).
  23. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  24. Shannon Seitz, 2009. "Accounting for Racial Differences in Marriage and Employment," Journal of Labor Economics, University of Chicago Press, vol. 27(3), pages 385-437, 07.
  25. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
  26. repec:tpr:qjecon:v:113:y:1998:i:2:p:603-640 is not listed on IDEAS
  27. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
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