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 Britain for the period 1968-1992 are used to show a strong growth in transitory inequality toward the end of this period, while younger cohorts are shown to face significantly higher levels of permanent inequality.
Find the working paper here.
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.
Journal article details
- Publisher
- Quarterly Journal of Economics
- Issue
- May 1998
Suggested citation
Blundell, R and Preston, I. (1998). 'Consumption inequality and income uncertainty' (1998)
More from IFS
Understand this issue
Social mobility and wealth
12 December 2023
Cutting inheritance tax isn’t quite as simple as its proponents suggest
20 November 2023
How important is the Bank of Mum and Dad?
15 December 2023
Policy analysis
Distributional analysis of Ghana’s tax system
18 December 2023
Social mobility and wealth
Spring Budget 2024
6 March 2024
Academic research
Saving by buying ahead: stockpiling in response to lump-sum payments
2 February 2024
Measuring wellbeing growth and convergence in multivariate ordered categorical worlds: Has there been any levelling up in the United Kingdom?
21 December 2023
Adverse selection among early adopters and unraveling innovation
18 December 2023