<p>Significant departures from log normality are observed in income data, in violation of Gibrat's law. We show empirically that the distribution of consumption expenditures across households is, within cohorts, closer to log normal than the distribution of income. We explain this empirical result by showing that the logic of Gibrat's law applies not to total income, but to permanent income and to marginal utility.</p>
Authors
Erich Battistin
Richard Blundell
CPP Co-Director
Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.
Arthur Lewbel
Research Associate Boston College
Arthur is a Research Associate of the IFS and holds the Barbara A. and Patrick E. Roche chair in economics at Boston College.
Journal article details
- Publisher
- University of Chicago Press
- Issue
- December 2009
Suggested citation
E, Battistin and R, Blundell and A, Lewbel. (2009). 'Why is consumption more log normal than income? Gibrat's law revisited' (2009)
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