Why is Consumption More Log Normal Than Income? Gibrat's Law Revisited

Erich Battistin (ebattist@umd.edu), Richard Blundell (r.blundell@ucl.ac.uk) and Arthur Lewbel

No 671, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: Significant departures from log normality are observed in income data, in violation of Gibrat's law. We identify a new empirical regularity, which is that the distribution of consumption expenditures across households is, within cohorts, closer to log normal than the distribution of income. We explain these empirical results by showing that the logic of Gibrat's law applies not to total income, but to permanent income and to maginal utility. These findings have important implications for welfare and inequality measurement, aggregation, and econometric model analysis.

Keywords: Consumption; Income; Lognormal; Inequality; Gibrat. (search for similar items in EconPapers)
JEL-codes: D12 D3 D91 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2007-07-06
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (28)

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Related works:
Journal Article: Why Is Consumption More Log Normal than Income? Gibrat's Law Revisited (2009)
Working Paper: Why is consumption more log normal than income? Gibrat's law revisited (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:671

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