This paper places the debate over using consumption or income in studies of inequality growth in a formal intertemporal setting. It highlights the importance of permanent and transitory income uncertainty in the evaluation of growth in consumption inequality. We derive conditions under which the growth of variances and covariances of income and consumption can be used to separately identify the growth in the variance of permanent and transitory income shocks.Household data from the United Kingdom for the period 1968-1992 are used to show a strong growth in transitory inequality towards the end of this period while younger cohorts are shown to face significantly higher levels of permanent inequality.
Authors
CPP Co-Director
Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.
Research Fellow University College London
Ian is a Research Fellow of the IFS and a Professor of Economics at UCL. He joined UCL in 1991 and has been attached to the IFS since 1990.
Working Paper details
- DOI
- 10.1920/wp.ifs.1997.9715
- Publisher
- IFS
Suggested citation
Blundell, R and Preston, I. (1997). Consumption, inequality and income uncertainty. London: IFS. Available at: https://ifs.org.uk/publications/consumption-inequality-and-income-uncertainty (accessed: 28 March 2024).
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