Consumption

  • Luigi Pistaferri

Leader: Luigi Pistaferri

The study of poverty and inequality has long privileged measures of income over those of consumption. Does this lead us awry? The purpose of the Consumption RG, which the CPI has founded only recently, is to monitor trends in consumption-based poverty and inequality and to understand the sources of those trends. The analyses within this RG will focus on the individual components of consumption because they are not always moving in lockstep. For example, inequality in the ownership of major durables has been declining, whereas inequality in nondurables, services, and food consumption has been increasing. The trends in food consumption are further complicated, however, because coloric intake is not growing more unequal, partly as a result of assistance provided by SNAP. The main rationale for setting up this RG is that patterns of consumption, especially among the poor, appear to be changing in complicated ways that require careful study and documenting. Although in principle the well-being of households may be better assessed with consumption than income, a consumption-based approach is thus complicated by the very different trends across the components of consumption and by difficulties in knowing the value assigned to the quality of goods that are consumed.

Consumption - CPI Research

Title Author Media
Inequality and Mobility Using Income, Consumption, and Wealth for the Same Individuals Jonathan Fisher, David Johnson, Jonathan P. Latner, Timothy Smeeding, Jeffrey Thompson

Inequality and Mobility Using Income, Consumption, and Wealth for the Same Individuals

Author: Jonathan Fisher, David Johnson, Jonathan P. Latner, Timothy Smeeding, Jeffrey Thompson
Publisher: RSF
Date: 11/2016

Recent studies of economic inequality almost always separately examine income inequality, consumption inequality, and wealth inequality, and hence, these studies miss the important synergy between the three measures explicit in the life-cycle budget constraint. Using the Panel Study of Income Dynamics (PSID), we study inequality in three dimensions, focusing on the conjoint distributions of income, consumption, and wealth for the same individuals. We find that the trends in inequality in income, consumption, and wealth similarly increase between 1999 and 2013. We examine the pairwise distributions of our measures using the average propensity to consume and the wealth-income ratios. Using the longitudinal nature of the PSID, we follow people over this period and find mobility is similar using income, consumption, and wealth. We conclude that while all three types of inequality are rising, wealth increasingly acts as a buffer to cushion income changes, which could reduce mobility—both intra- and inter-generational mobility.

Consumption Inequality Orazio P. Attanasio, Luigi Pistaferri

Consumption Inequality

Author: Orazio P. Attanasio, Luigi Pistaferri
Publisher: Journal of Economic Perspectives
Date: 04/2016

In this essay, we discuss the importance of consumption inequality in the debate concerning the measurement of disparities in economic well-being. We summarize the advantages and disadvantages of using consumption as opposed to income for measuring trends in economic well-being. We critically evaluate the available evidence on these trends, and in particular discuss how the literature has evolved in its assessment of whether consumption inequality has grown as much as or less than income inequality. We provide some novel evidence on three relatively unexplored themes: inequality in different spending components, inequality in leisure time, and intergenerational consumption mobility.

Does the benefits schedule of cash assistance programs affect the purchase of temptation goods? Evidence from Peru J.S. White, S. Basu

Does the benefits schedule of cash assistance programs affect the purchase of temptation goods? Evidence from Peru

Author: J.S. White, S. Basu
Publisher: Journal of Health Economics
Date: 03/2016

A critique of cash assistance programs is that beneficiaries may spend the money on "temptation goods" such as alcohol and tobacco. We exploit a change in the payment schedule of Peru's conditional cash transfer program to identify the impact of benefit receipt frequency on the purchase of temptation goods. We use annual household data among cross-sectional and panel samples to analyze the effect of the policy change on the share of the household budget devoted to four categories of temptation goods. Using a difference-in-differences estimation approach, we find that larger, less frequent payments increased the expenditure share of alcohol by 55-80% and sweets by 10-40%, although the absolute magnitudes of these effects are small. Our study suggests that less frequent benefits scheduling may lead cash recipients to make certain types of temptation purchases.

Consumption Inequality and Family Labor Supply Richard Blundell , Luigi Pistaferri , Itay Saporta-Eksten

Consumption Inequality and Family Labor Supply

Author: Richard Blundell , Luigi Pistaferri , Itay Saporta-Eksten
Publisher: American Economic Review
Date: 02/2016

We examine the link between wage and consumption inequality using a life-cycle model incorporating consumption and family labor supply decisions. We derive analytical expressions for the dynamics of consumption, hours, and earnings of two earners in the presence of correlated wage shocks, nonseparability, progressive taxation, and asset accumulation. The model is estimated using panel data for hours, earnings, assets, and consumption. We focus on family labor supply as an insurance mechanism and find strong evidence of smoothing of permanent wage shocks. Once family labor supply, assets, and taxes are properly accounted for there is little evidence of additional insurance.

Inequality of Income and Consumption in the U.S.: Measuring the Trends in Inequality from 1984 to 2011 for the Same Individuals Jonathan Fisher, David S. Johnson, Timothy M. Smeeding

Inequality of Income and Consumption in the U.S.: Measuring the Trends in Inequality from 1984 to 2011 for the Same Individuals

Author: Jonathan Fisher, David S. Johnson, Timothy M. Smeeding
Publisher: Review of Income and Wealth
Date: 12/2015

This paper examines the distribution of income and consumption in the U.S. using one dataset that obtains measures of both income and consumption from the same set of individuals. We develop a set of inequality measures that show the increase in inequality during the past 27 years using the 1984–2011 Consumer Expenditure Survey. We find that the trends in income and consumption inequality are similar between 1984 and 2006, and diverge during and after the Great Recession. For the entire 27-year period we find that consumption inequality increases almost as much as does income inequality.

Consumption - CPI Affiliates

Luigi Pistaferri Consumption Research Group Leader; Professor of Economics; "Ralph Landau" Senior Fellow at SIEPR Stanford University
Robert H. Frank H. J. Louis Professor of Management; Professor of Economics Johnson Graduate School of Management, Cornell University
Timothy M. Smeeding Distinguished Professor of Economics and Public Adminstration; Former Director, Institute for Research on Poverty University of Wisconsin-Madison

Consumption - Other Research

Title Author Media
Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution? Jeffrey Thompson

Do Rising Top Incomes Lead to Increased Borrowing in the Rest of the Distribution?

Author: Jeffrey Thompson
Publisher: Federal Reserve Board of Governors
Date: 05/2016

One potential consequence of rising concentration of income at the top of the distribution isincreased borrowing, as less affluent households attempt to maintain standards of living with less income. This paper explores the “keeping up with the Joneses” phenomenon using data from the Survey of Consumer Finances. Specifically, it examines the responsiveness of payment-to-income ratios for different debt types at different parts of the income distribution to changes in the income thresholds at the 95th and 99th percentiles. The analysis provides some evidence indicating that household debt payments are responsive to rising top incomes. Middle and upper middle income households take on more housing-related debt and have higher housing debt payment to income ratios in places with higher top income levels. Among households at the bottom of the income distribution there is a decline in non-mortgage borrowing and debt payments in areas with rising top-income levels, consistent with restrictions in the supply of credit. The analysis also consistently shows that 95th percentile income has a greater influence on borrowing and debt payment across in the rest of the distribution than the more affluent 99th percentile level.

Has Consumption Inequality Mirrored Income Inequality? Mark Aguiar , Mark Bils

Has Consumption Inequality Mirrored Income Inequality?

Author: Mark Aguiar , Mark Bils
Publisher: American Economic Review
Date: 09/2015

We revisit to what extent the increase in income inequality since 1980 was mirrored by consumption inequality. We do so by constructing an alternative measure of consumption expenditure using a demand system to correct for systematic measurement error in the Consumer Expenditure Survey. Our estimation exploits the relative expenditure of high- and low-income households on luxuries versus necessities. This double differencing corrects for measurement error that can vary over time by good and income. We find consumption inequality tracked income inequality much more closely than estimated by direct responses on expenditures.

Errors in Survey Reporting and Imputation and their Effects on Estimates of Food Stamp Program Participation Bruce D. Meyer, Robert M. Goerge, Nikolas Mittag

Errors in Survey Reporting and Imputation and their Effects on Estimates of Food Stamp Program Participation

Author: Bruce D. Meyer, Robert M. Goerge, Nikolas Mittag
Publisher:
Date: 06/2015

Measuring government benefit receipt in household surveys is important to assess the economic circumstances of disadvantaged populations, program takeup, the distributional effects of government programs, and other program effects. Receipt of food stamps is especially important given the large and growing size of the program and evidence of its effects on labor supply, health and other outcomes. We use administrative data on food
stamp participation in two states matched to American Community Survey (ACS), Current Population Survey (CPS), and Survey of Income and Program Participation (SIPP) household data. We find that 23 percent of true recipient households do not report receipt in the SIPP, 35 percent in the ACS, and fully 50 percent do not report receipt in the CPS. Both false negative and false positive reports vary with individual characteristics, leading to complicated biases in food stamp analyses. Our results are also informative about the reasons for misreporting and the success of different survey methods. We then directly examine biases in research finding, in particular the determinants of program receipt using our combined administrative and survey data. Our results differ from conventional estimates in showing higher participation by single parents, non-whites, middle-income households, and other groups. We directly examine one source of potential error, Census Bureau imputations, finding that excluding the imputed observations leads to worse ACS estimates, but has little effect on the CPS and SIPP estimates.

Improving the Measurement of Consumer Expenditures

Improving the Measurement of Consumer Expenditures

Author:
Publisher: University of Chicago Press
Date: 06/2015

Robust and reliable measures of consumer expenditures are essential for analyzing aggregate economic activity and for measuring differences in household circumstances. Many countries, including the United States, are embarking on ambitious projects to redesign surveys of consumer expenditures, with the goal of better capturing economic heterogeneity. This is an appropriate time to examine the way consumer expenditures are currently measured, and the challenges and opportunities that alternative approaches might present.      

Improving the Measurement of Consumer Expenditures begins with a comprehensive review of current methodologies for collecting consumer expenditure data. Subsequent chapters highlight the range of different objectives that expenditure surveys may satisfy, compare the data available from consumer expenditure surveys with that available from other sources, and describe how the United States’s current survey practices compare with those in other nations.

Consumption and Income Inequality and the Great Recession Bruce D. Meyer , James X. Sullivan

Consumption and Income Inequality and the Great Recession

Author: Bruce D. Meyer , James X. Sullivan
Publisher: American Economic Review
Date: 05/2013

We examine changes in consumption and income inequality between 2000 and 2011. During the most recent recession, unemployment rose and asset values declined sharply. We investigate how the recession affected inequality while addressing concerns about underreporting in consumption data. Income inequality rose throughout the period from 2000 to 2011. The 90/10 ratio was 19 percent higher at the end of this period than at the beginning. In contrast, consumption inequality rose during the first half of this period but then fell after 2005. By 2011, the 90/10 ratio for consumption was slightly lower than it was in 2000.