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Consumption Inequality and Intra-Household Allocations

  • Jeremy Lise

    (Queen's University)

  • Shannon Seitz

    (Queen's University)

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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File URL: http://econwpa.repec.org/eps/lab/papers/0504/0504001.pdf
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Paper provided by EconWPA in its series Labor and Demography with number 0504001.

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Length: 40 pages
Date of creation: 08 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpla:0504001
Note: Type of Document - pdf; pages: 40
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Martin Browning & Pierre-Andrée Chiappori & Arthur Lewbel, 2004. "Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power," Boston College Working Papers in Economics 588, Boston College Department of Economics, revised 01 Sep 2010.
  2. Thomas F. Crossley & Krishna Pendakur, 2002. "Consumption Inequality," Department of Economics Working Papers 2002-09, McMaster University.
  3. Dirk Krueger & Fabrizio Perri, 2005. "Does income inequality lead to consumption equality? evidence and theory," Staff Report 363, Federal Reserve Bank of Minneapolis.
  4. Shannon N. Seitz, 2002. "Accounting for Racial Differences in Marriage and Employment," Working Papers 1009, Queen's University, Department of Economics.
  5. Fernandez, R. & Rogerson, R., 1999. "Sorting and Long-Run Inequality," Working Papers 99-22, C.V. Starr Center for Applied Economics, New York University.
  6. Donni, Olivier, 2005. "Collective Female Labour Supply: Theory and Application," IZA Discussion Papers 1506, Institute for the Study of Labor (IZA).
  7. repec:oup:restud:v:74:y:2007:i:2:p:417-445 is not listed on IDEAS
  8. 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.
  9. 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.
  10. 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.
  11. M. Browning & P. A. Chiappori, 1998. "Efficient Intra-Household Allocations: A General Characterization and Empirical Tests," Econometrica, Econometric Society, vol. 66(6), pages 1241-1278, November.
  12. 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.
  13. Vermeulen, Frederic, 2002. " Collective Household Models: Principles and Main Results," Journal of Economic Surveys, Wiley Blackwell, vol. 16(4), pages 533-64, September.
  14. Chiappori, Pierre-Andre, 1988. "Rational Household Labor Supply," Econometrica, Econometric Society, vol. 56(1), pages 63-90, January.
  15. 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.
  16. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762.
  17. 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.
  18. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
  19. 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.
  20. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
  21. 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.
  22. Haddad, Lawrence & Kanbur, Ravi, 1990. "Are better off households more unequal or less unequal ?," Policy Research Working Paper Series 373, The World Bank.
  23. 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.
  24. 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.
  25. Pierre-André Chiappori & Richard Blundell & Costas Meghir, 2002. "Collective labour supply with children," IFS Working Papers W02/08, Institute for Fiscal Studies.
  26. 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.
  27. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
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