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Consumption inequality and partial insurance (2008)
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| Venue: | American Economic Review |
| Citations: | 81 - 7 self |
BibTeX
@ARTICLE{Blundell08consumptioninequality,
author = {Richard Blundell and Luigi Pistaferri and Ian Preston},
title = {Consumption inequality and partial insurance},
journal = {American Economic Review},
year = {2008},
pages = {1887--1921}
}
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Abstract
This paper uses panel data on household consumption and income inquality to evaluate the degree of insurance to income shocks. Our aim is to describe the transmission of income inequality into consumption inequality. Our framework nests the special cases of self-insurance and the complete markets assumption. We assess the degree of insurance over and above selfinsurance through savings by contrasting shifts in the distribution of income growth with shifts in the distribution of consumption growth, and analyzing the way these two measures of household welfare correlate over time. We combine panel data on income from the PSID with consumption data from repeated CEX cross-sections using a demand analysis approach. Our results point to some partial insurance but reject the complete markets restriction. We Þnd a greater degree of insurance for transitory shocks and differences in the degree of insurance over time. We also document the importance of durables and of taxes and transfers as a means of insurance.
Keyphrases
consumption inequality partial insurance panel data consumption growth income inequality income inquality complete market assumption demand analysis approach consumption data household welfare correlate transitory shock income growth complete market restriction household consumption cex cross-sections special case result point income shock
