This paper examines the often stated idea that the poor do not support high levels of redistribution because of the hope that they, or their offspring, may make it up the income ladder. This “prospect of upward mobility” (POUM) hypothesis is shown to be fully compatible with rational expectations, and fundamentally linked to concavity in the mobility process. A steady-state majority could even be simultaneously poorer than average in terms of current income, and richer than average in terms of expected future incomes. A first empirical assessment suggests, on the other hand, that in recent U. S. data the POUM effect is probably dominated by the demand for social insurance.

We propose a new class of mobility measures which we call “measures of distributional difference.” Members of this new class measure mobility as integrated weighted distributional difference. We demonstrate that many leading measures of mobility proposed in the literature are members of this class. Our approach therefore permits a considerable unification of a diverse literature. Moreover, our tools enable us to make explicit the implicit weighting properties of leading members of this class whose original forms do not lend themselves to such an analysis. This leads us to question the attractiveness of some popular mobility indices.

for helpful suggestions. Iowe special thanks to an anonymous referee who carefully

Abstract not found

The common approach to measuring income mobility is to compute a mobility index, which reduces the information about income changes contained in the joint distribution of incomes into a scalar. Information about "local" income changes is aggregated into a "global" mobility index. We derive an approximation to the aggregation rule for the important class of so-called stability indices. By comparing global mobility estimates and local distributional change between the USA and Germany, we explain the empirical puzzle observed by Burkhauser et al. (1997) who find that Germany has more income mobile than the USA. We show that the relative global mobility ranking of the two countries is driven by the first-period poors.

The theory of intertemporal consumption choice makes sharp predictions about the evolution of the entire distribution of household consumption, not just about its conditional mean. In a first step, we study the empirical transition matrix of consumption using a panel drawn from the Bank of Italy Survey of Household Income and Wealth. In a second step, we simulate the transition matrix of the consumption distribution using parameters for the income process estimated on the same dataset. Comparison between the actual and the simulated transition matrix for consumption is favorable to the permanent income hypothesis once we allow for measurement error in consumption and a moderate degree of excess sensitivity to income shocks. The theory of consumption insurance is strongly rejected.

There is no one “magic ” relevant horizon for risk management. Instead, the relevant horizon will generally vary by asset class (for example, equity versus bonds), industry (banking versus insurance), position in the firm (trading

James Heckman for raising the questions that led to this paper. Useful comments were obtained from Richard Arnott, James Anderson and from participants at This paper provides an explicit welfare basis for evaluating economic mobility. Our social welfare function can be seen as a natural dynamic extension of the static social welfare function presented in Atkinson and Bourguignon (1982). Unlike

This paper draws on the first four waves of data of the British Household Panel Survey (BHPS) to analyse the statics and dynamics of the earnings distribution in the early nineties. Motivated by the wide range of concerns which mobility is viewed to serve, I analyse mobility under three complementary headings: (i) predictability or state dependence; (ii) movement; and (iii) welfare implications; and find that mobility is rather low. When mobility is modelled as a discrete stochastic process, earnings are best described by a second order Markov chain. This paper is part of my PhD thesis at the Institute for Social and Economic Research, University of Essex. I would like to thank Stephen Jenkins for his many and valuable comments and discussions. My thanks also to Frank Cowell and John Ermisch. The usual disclaimer applies. To get Figure 5, please contact the author. Correspondence to: Universitat Autnoma de Barcelona, Dept. Economia Aplicada, Edifici B, 08193 Bellaterra. Spain. E-mai...

errors or omissions remain my responsibility. 1 Space-time analysis of GDP disparities among European regions: A Markov chains approach The purpose of this paper is to study the evolution of the disparities between 138 European regions over the 1980-1995 period. We characterize the regional per capita GDP cross-sectional distribution by means of nonparametric estimations of density functions and we model the growth process as a first-order stationary Markov chain. Spatial effects are then introduced within the Markov chain framework using regional conditioning and spatial Markov chains. The results of the analysis indicate the persistence of regional disparities, a progressive bias toward a poverty trap and the importance of geography to explain growth and convergence processes.