Welfare-based income insecurity in the us and germany: evidence from harmonized panel data

Nicholas Rohde, Kam Ki Tang, D’Ambrosio, Conchita, Lars Osberg and Prasada Rao
Authors registered in the RePEc Author Service: Conchita D'Ambrosio

Journal of Economic Behavior & Organization, 2020, vol. 176, issue C, 226-243

Abstract: This paper develops normative approaches for measuring individual-level income insecurity. Using concepts derived from Expected Utility Theory and Prospect Theory, we build a suite of measures designed to capture various facets of psychologically distressing income risk. We present an application for the US and Germany from 1993–2013, employing conditionally heteroskedastic fixed-effects models to generate predictive densities for future incomes. Our results reveal much higher levels of income risk in the US relative to Germany, which can be mostly attributed to a higher level of autonomous, time-invariant volatility. State-by-state variations in liberal/conservative political administrations partially explain our results, and we find some evidence that trade exposure is a contributing factor in the US.

Keywords: Economic insecurity; Income risk; Panel data; Reference dependent utility (search for similar items in EconPapers)
JEL-codes: D31 D63 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:176:y:2020:i:c:p:226-243

DOI: 10.1016/j.jebo.2020.04.023

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