Consumption Inequality, Income Uncertainty and Insurance

Luigi Pistaferri (), Richard Blundell () and Ian Peter Preston ()

No 215, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: This paper uses panel data on household consumption and income to describe the transmission of income inequality into consumption inequality. We do this by contrasting shifts in the cross-sectional distribution of income growth with shifts in the cross-sectional distribution of consumption growth. Our aim is to evaluate the time series pattern of permanent income inequality and to assess the degree of insurance. We combine panel data on income from the PSID with consumption data from repeated CEX cross-sections. The results point to some partial insurance but reject the complete market restrictions. We find a greater degree of insurance for transitory shocks and differences in the degree of insurance over time and across demographic groups. We also document the importance of durables and of taxes and transfers as a means of insurance

Keywords: Consumption Dynamics; Income Shocks; Inequality; Insurance (search for similar items in EconPapers)
JEL-codes: D52 D91 I30 (search for similar items in EconPapers)
Date: 2004

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Persistent link: http://EconPapers.repec.org/RePEc:red:sed004:215

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