Follow us
Publications Commentary Research People Events News Resources and Videos About IFS
Home Publications Consumption inequality and partial insurance

Consumption inequality and partial insurance

Journal article | American Economic Review

This paper describes the transmission of income inequality into consumption inequality and in so doing investigates the degree of insurance to income shocks. It combines panel data on income from the PSID with consumption data from repeated CEX cross-sections and distinguishes between permanent and transitory income shocks. We find some partial insurance of permanent income shocks with more insurance possibilities for the college educated and those nearing retirement. We find little evidence against full insurance for transitory income shocks except among low income households. Tax and welfare benefits are found to play an important role in insuring permanent shocks. Adding durable expenditures to the consumption measure suggests that durable replacement is an important insurance mechanism, especially for transitory income shocks.

Find the working paper here.

Deaton inequality website

Find out more

News
'Consumption Inequality and Partial Insurance' by Richard Blundell, Luigi Pistaferri and Ian Preston, published in the American Economic Review in December 2008 has been identified by Thomson Reuters Essential Science Indicators as a Fast Breaking Paper in the field of Economics and Business, which ...
IFS Working Paper W04/28
This paper describes the transmission of income inequality into consumptioninequality and in so doing investigates the degree of insurance to incomeshocks.