Income Shocks or Insurance - What Determines Consumption Inequality?

Johannes Ludwig

No 550, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Contrary to the implications of economic theory, consumption inequality in the US did not react to the increases in income inequality during the last three decades. This paper investigates if a change in the type of income inequality - from permanent to transitory - or a change in the ability to insure income shocks is responsible for this. A measure of household consumption is imputed into the Panel Study of Income Dynamics to create panel data on income and consumption for the period 1980-2010. The minimum distance investigation of covariance relationships shows that both explanations work together: the share of transitory shocks increases over time, but the capability to insure permanent and transitory shocks to income also improves. Together, these phenomena can explain the lack of an increase in consumption inequality.

Keywords: consumption inequality; income inequality; consumption insurance (search for similar items in EconPapers)
JEL-codes: D12 D31 E21 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ias and nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/110342/1/825614619.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:550

DOI: 10.4419/86788628

Access Statistics for this paper

More papers in Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().