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  3. American Economic Review
  4. February 2016
  5. Consumption Inequality and Family Labor Supply

Consumption Inequality and Family Labor Supply

  • Richard Blundell
  • Luigi Pistaferri
  • Itay Saporta-Eksten
American Economic Review
vol. 106, no. 2, February 2016
(pp. 387-435)
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Abstract

We examine the link between wage and consumption inequality using a life-cycle model incorporating consumption and family labor supply decisions. We derive analytical expressions for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, nonseparability, progressive taxation, and asset accumulation. The model is estimated using panel data for hours, earnings, assets, and consumption. We focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks. Once family labor supply, assets, and taxes are properly accounted for there is little evidence of additional insurance. (JEL D12, D14, D91, J22, J31)

Citation

Blundell, Richard, Luigi Pistaferri, and Itay Saporta-Eksten. 2016. "Consumption Inequality and Family Labor Supply." American Economic Review, 106 (2): 387-435. DOI: 10.1257/aer.20121549

Additional Materials

JEL Classification

  • D12 Consumer Economics: Empirical Analysis
  • D14 Household Saving; Personal Finance
  • D15 Intertemporal Household Choice; Life Cycle Models and Saving
  • J22 Time Allocation and Labor Supply
  • J31 Wage Level and Structure; Wage Differentials