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American Economic Review: Vol. 98 No. 5 (December 2008)

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Consumption Inequality and Partial Insurance

Article Citation

Blundell, Richard, Luigi Pistaferri, and Ian Preston. 2008. "Consumption Inequality and Partial Insurance." American Economic Review, 98(5): 1887-1921.

DOI: 10.1257/aer.98.5.1887

Abstract

This paper examines the link between income and consumption inequality. We create panel data on consumption for the Panel Study of Income Dynamics using an imputation procedure based on food demand estimates from the Consumer Expenditure Survey. We document a disjuncture between income and consumption inequality over the 1980s and show that it can be explained by changes in the persistence of income shocks. We find some partial insurance of permanent shocks, especially for the college educated and those near retirement. We find full insurance of transitory shocks except among poor households. Taxes, transfers, and family labor supply play an important role in insuring permanent shocks. (JEL D12, D31, D91, E21)

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Authors

Blundell, Richard (U College London and Institute for Fiscal Studies)
Pistaferri, Luigi (Stanford U)
Preston, Ian (U College London and Institute for Fiscal Studies)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
D31: Personal Income, Wealth, and Their Distributions
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
E21: Macroeconomics: Consumption; Saving; Wealth


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