Consumption Inequality and Partial Insurance
American Economic Review
vol. 98,
no. 5, December 2008
(pp. 1887-1921)
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)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.98.5.1887Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D31 Personal Income, Wealth, and Their Distributions
- D15 Intertemporal Consumer Choice; Life Cycle Models and Saving
- E21 Macroeconomics: Consumption; Saving; Wealth