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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. First, the use of adult equivalence scales underestimates the level of cross sectional consumption inequality by 30%. This result is driven by the fact that 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 two-thirds: within house-hold 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 Society for Economic Dynamics in its series 2005 Meeting Papers with number 448.

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Date of creation: 2005
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Handle: RePEc:red:sed005:448
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  1. 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.
  2. Shannon N. Seitz, 2002. "Accounting for Racial Differences in Marriage and Employment," Working Papers 1009, Queen's University, Department of Economics.
  3. Blundell, Richard & Chiappori, Pierre-André & Magnac, Thierry & Meghir, Costas, 2005. "Collective Labour Supply: Heterogeneity and Nonparticipation," IZA Discussion Papers 1785, Institute for the Study of Labor (IZA).
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  7. Raquel Fernández & Richard Rogerson, 2001. "Sorting And Long-Run Inequality," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1305-1341, November.
  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.
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  11. 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.
  12. 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.
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  14. Frederic VERMEULEN, 2000. "Collective Household Models: Principles and Main Results," Center for Economic Studies - Discussion papers ces0028, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  15. 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.
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  21. 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.
  22. repec:cup:cbooks:9780521296762 is not listed on IDEAS
  23. Pierre-André Chiappori & Richard Blundell & Costas Meghir, 2002. "Collective labour supply with children," IFS Working Papers W02/08, Institute for Fiscal Studies.
  24. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
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