Consumption Inequality and Partial Insurance

This paper examines the link between income and consumption inequality. We create panel data on consumption for the Panel Study of Income Dynamics using an imputation procedure based on food demand estimates from the Consumer Expenditure Survey. We document a disjuncture between income and consumpti...

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Bibliographic Details
Published in:The American economic review 2008-12, Vol.98 (5), p.1887-1921
Main Authors: Blundell, Richard, Pistaferri, Luigi, Preston, Ian
Format: Article
Language:English
Subjects:
Bankruptcy laws
Borrowing
Consumer economics
Consumer expenditure
Consumer information
Consumer spending
Consumption
Correlation analysis
Economic theory
Economics
Expenditures
Food
Food consumption
Food demand
Household expenditure
Households
Hypotheses
Income distribution
Income estimates
Income inequality
Inequality
Insurance
Labor supply
Longitudinal studies
Macroeconomics
Personal bankruptcy
Personal finance
Public policy
Self insurance
Statistical discrepancies
Statistical variance
Studies
Survey data
Transitory income
U.S.A
Wages
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Summary:This paper examines the link between income and consumption inequality. We create panel data on consumption for the Panel Study of Income Dynamics using an imputation procedure based on food demand estimates from the Consumer Expenditure Survey. We document a disjuncture between income and consumption inequality over the 1980s and show that it can be explained by changes in the persistence of income shocks. We find some partial insurance of permanent shocks, especially for the college educated and those near retirement. We find full insurance of transitory shocks except among poor households. Taxes, transfers, and family labor supply play an important role in insuring permanent shocks.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.98.5.1887