Journal Article

Consumption Inequality and Intra-household Allocations

Jeremy Lise and Shannon Seitz

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 78, issue 1, pages 328-355
Published in print January 2011 | ISSN: 0034-6527
Published online January 2011 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1093/restud/rdq003
Consumption Inequality and Intra-household Allocations

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  • Demand and Supply of Labour
  • Household Behaviour and Family Economics
  • Microeconomics

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The consumption literature uses adult equivalence scales to measure individual-level inequality. This practice imposes the assumption that there is no within-household inequality. In this paper, we show that ignoring consumption inequality within households produces misleading estimates of inequality along two dimensions. To illustrate this point, we use a collective model of household behaviour to estimate consumption inequality in the U.K. from 1968 to 2001. First, the use of adult equivalence scales underestimates the initial level of cross-sectional consumption inequality by 50%, as large differences in the earnings of husbands and wives translate into large differences in consumption allocations within households. Second, we estimate the rise in between-household inequality has been accompanied by an offsetting reduction in within-household inequality. Our findings also indicate that increases in marital sorting on wages and hours worked can simultaneously explain two-thirds of the decline in within-household inequality and between a quarter and one-half of the rise in between-household inequality for one and two adult households.

Keywords: Collective model; Consumption inequality; Marital sorting; Adult equivalence scales; D12; D13; D31; J22

Journal Article.  10690 words.  Illustrated.

Subjects: Demand and Supply of Labour ; Household Behaviour and Family Economics ; Microeconomics

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