Economics at your fingertips  

Income Mobility, Income Risk and Welfare

Tom Krebs (), Pravin Krishna () and William Maloney ()

No 23578, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a framework for the quantitative analysis of individual income dynamics, mobility and welfare, with ex-ante identical individuals facing a stochastic income process and market incompleteness implying that they are unable to insure against persistent shocks to income. We show how the parameters of the income process can be estimated using repeated cross-sectional data with a short panel dimension, and use a simple consumption-saving model for quantitative analysis of mobility and welfare. Our empirical application, using data on individual incomes from Mexico, provides striking results. Most of measured income mobility is driven by measurement error or transitory income shocks and therefore (almost) welfare-neutral. Only a small part of measured income mobility is due to either welfare-reducing income risk or welfare-enhancing catching-up of low-income individuals with high-income individuals, both of which, nevertheless, have economically significant effects on social welfare. Strikingly, roughly half of the mobility that cannot be attributed to measurement error or transitory income shocks is driven by welfare-reducing persistent income shocks. Decomposing mobility into its fundamental components is thus crucial from the standpoint of welfare evaluation.

JEL-codes: F0 J0 J6 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-dge and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Published as Tom Krebs & Pravin Krishna & William F Maloney, 2019. "Income Mobility, Income Risk, and Welfare," The World Bank Economic Review, vol 33(2), pages 375-393.

Downloads: (external link) (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:

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

Page updated 2020-06-27
Handle: RePEc:nbr:nberwo:23578