Showing papers in "Review of Income and Wealth in 2016"
TL;DR: In this paper, the authors studied productivity trends, trend breaks, and levels for 13 advanced countries between 1890 and 2012, highlighting two productivity waves, a big one following the second industrial revolution and a smaller one following ICT revolution.
Abstract: In order to examine productivity waves and convergence processes, we study productivity trends, trend breaks, and levels for 13 advanced countries between 1890 and 2012. We highlight two productivity waves, a big one following the second industrial revolution and a smaller one following the ICT revolution. The convergence process has been erratic, halted by inappropriate institutions, technology shocks, financial crises, and above all wars, which led to major productivity level leaps, downwards for countries experiencing war on their soil, and upwards for other countries. Productivity trend breaks have been identified following wars, global financial crises, global supply shocks, and major policy changes. The upward trend break for the U.S. in the mid-1990s has been confirmed, as has the downward trend break for the euro area in the same period.
85 citations
TL;DR: In this article, a general rationale of the underlying methodological problem as well as a specific methodological approach tailored to correcting the arising bias is proposed. But the results suggest that the alleged non-observation bias is considerable, accounting for about one quarter of total net wealth in the case of Austria.
Abstract: It is a well-known criticism that if the distribution of wealth is highly concentrated, survey data are hardly reliable when it comes to analyzing the richest parts of society. This paper addresses this criticism by providing a general rationale of the underlying methodological problem as well as by proposing a specific methodological approach tailored to correcting the arising bias. We illustrate the latter approach by using Austrian data from the Household Finance and Consumption Survey. Specifically, we identify suitable parameter combinations by using a series of maximum-likelihood estimates and appropriate goodness-of-fit tests to avoid arbitrariness with respect to the fitting of the Pareto distribution. Our results suggest that the alleged non-observation bias is considerable, accounting for about one quarter of total net wealth in the case of Austria. The method developed in this paper can easily be applied to other countries where survey data on wealth are available.
65 citations
TL;DR: This paper used a panel for 32 developed countries spanning the last four decades and found that the predictions of the Stolper-Samuelson theorem concerning the effects of international trade on income inequality find support in the data if we concentrate on imports from developing countries as a trade measure, as theory would imply.
Abstract: We address empirically the factors affecting the dynamics of income inequality among industrialized economies. Using a panel for 32 developed countries spanning the last four decades, our results indicate that the predictions of the Stolper-Samuelson theorem concerning the effects of international trade on income inequality find support in the data if we concentrate on imports from developing countries as a trade measure, as theory would imply. We find that democratization, the interaction of technology and education and changes in the relative power of labour unions affect inequality dynamics robustly.
54 citations
TL;DR: The authors used repeated household surveys from Australia and Canada to identify the transmission mechanism that links consumption and household wealth, and found that neither a direct wealth effect nor a common causal factor likely accounts for the observed correlation between wealth and consumption in these two countries.
Abstract: Over the past two decades, a number of countries have experienced appreciation in house prices at the same time that aggregate consumption has increased. This paper tests alternative hypotheses for this phenomenon by using repeated household surveys from Australia and Canada to identify the transmission mechanism that links consumption and household wealth. The empirical analysis suggests that neither a direct wealth effect nor a common causal factor likely accounts for the observed correlation between wealth and consumption in these two countries. Rather, indirect factors such as collateral effects arising from relaxation of credit constraints are a more likely explanation.
44 citations
TL;DR: In this article, a novel characterization of financial fragility that is not necessarily linked to indebtedness, distinguishes between expected and unexpected expenses, takes portfolio composition into account, and is free of subjectivity bias is proposed.
Abstract: We investigate household financial fragility in Italy, providing three main contributions. First, we propose a novel characterization of financial fragility that is not necessarily linked to indebtedness, distinguishes between expected and unexpected expenses, takes portfolio composition into account, and is free of subjectivity bias. Second, we use it to assess the importance of household portfolio composition for determining the difficulties related to coping with unexpected expenditures, besides socio-economic and demographic factors. Third, we test its ability to forecast future conditions of financial distress. The empirical analysis is based on the Bank of Italy Survey on Household Income and Wealth. The results highlight the relevance of portfolio choices as determinants of financial distress, that is, they provide evidence that homeownership increases the likelihood of financial fragility while the presence of a mortgage decreases it. Moreover our measure is shown to act as an early warning indicator of distress.
44 citations
TL;DR: In this paper, the authors find that a consumption measure out-performs income in predicting subjective wellbeing, when objective measures of consumption are combined with self-assessments of a household's standard of living, income becomes insignificant altogether.
Abstract: The positive relationship between income and subjective wellbeing has been well documented. However, work assessing the relationship of alternative material wellbeing metrics to subjective wellbeing is limited. Consistent with the permanent income hypothesis, we find that a consumption measure out-performs income in predicting subjective wellbeing. When objective measures of consumption are combined with self-assessments of a household’s standard of living, income becomes insignificant altogether. We obtain our result utilising household-level data from Statistics New Zealand’s ‘New Zealand General Social Survey’ which contains a measure of material wellbeing called the ‘Economic Living Standard Index’ that combines measures of consumption flows and self-assessments of material wellbeing.
42 citations
TL;DR: In this article, the authors studied welfare dynamics, especially changes associated with middle-class status in countries in the Middle East and North Africa, before and after the Arab Spring transitions, using objective and subjective welfare measures.
Abstract: This paper studies welfare dynamics, especially changes associated with middle-class status in countries in the Middle East and North Africa, before and after the Arab Spring transitions, using objective and subjective welfare measures. Absent panel data, the analysis employs state-of-the-art synthetic panel techniques using repeated cross sections of expenditure data from household surveys and subjective well-being data from value surveys, which were conducted during the 2000s and the Arab Spring period. The objective welfare dynamics indicate mixed trends. About half the poor in the 2000s moved out of poverty by the end of the decade, but chronic poverty remained high; upward mobility was strong in Syria and Tunisia, but downward mobility was pronounced in Yemen and Egypt. Subjective well-being dynamics suggest negative developments in most countries during the Arab Spring transitions. Low education achievement, informal worker status, and rural residency are positively associated with lower than average chances for upward mobility, and greater than average chances for downward mobility according to both types of welfare measures.
40 citations
TL;DR: This cross-country regression results argue that the extension of various public goods helps to explain this greater happiness homogeneity in countries that have experienced income growth, offering a somewhat brighter perspective for developing countries.
Abstract: In spite of the great U-turn that saw income inequality rise in Western countries in the 1980s, happiness inequality has fallen in countries that have experienced income growth (but not in those that did not). Modern growth has reduced the share of both the “very unhappy” and the “perfectly happy.” Lower happiness inequality is found both between and within countries, and between and within individuals. Our cross-country regression results suggest that the extension of various public goods helps to explain this greater happiness homogeneity. This new stylized fact arguably comes as a bonus to the Easterlin paradox, offering a somewhat brighter perspective for developing countries.
37 citations
TL;DR: This article made a case for the inclusion of supervisory child care time that does not overlap with other productive activities, and suggested several other methodological refinements for estimates based on analysis of data from the American Time Use Survey.
Abstract: This paper builds on previous satellite accounts that treat households as production units, but challenges their measurement and valuation of time devoted to child care, making a case for the inclusion of supervisory child care time that does not overlap with other productive activities. We also suggest several other methodological refinements for estimates based on analysis of data from the American Time Use Survey: application of a vector of specialized replacement cost wage estimates for different child care activities rather than a single wage, and adjustments for the ratio of children to adults present and for the educational attainment of caregivers. Our estimates of the value of child care alone in 2004 and 2010 exceed previous estimates of the value of all non-market household production in the U.S. The end result is an upward adjustment of Gross Domestic Product by about 43 percent compared to previous adjustments of about 26 percent.
36 citations
TL;DR: In this article, the authors combine the hedonic imputation method with a flexible hedonistic model that captures geospatial data using a nonparametric spline surface.
Abstract: Determining how and when to use geospatial data (i.e. longitudes and latitudes for each house) is probably the most pressing open question in the house price index literature. This issue is particularly timely for national statistical institutes (NSIs) in the European Union, which are now required by Eurostat to produce official house price indexes. Our solution combines the hedonic imputation method with a flexible hedonic model that captures geospatial data using a non-parametric spline surface. For Sydney, Australia, we find that the extra precision provided by geospatial data as compared with postcode dummies has only a marginal impact on the resulting hedonic price index. This is good news for resource-stretched NSIs. At least for Sydney, postcodes seem to be sufficient to control for locational effects in a hedonic house price index.
35 citations
TL;DR: In this paper, the authors present the first available estimates of top income shares and effective income tax rates in contemporary Chile based on analysis of anonymous income tax return microdata, which includes not only distributed profits, but also the large proportion of accrued profits retained by firms.
Abstract: This paper contributes to the burgeoning research on inequality and top incomes around the globe by presenting the first available estimates of top income shares and effective income tax rates in contemporary Chile based on analysis of anonymous income tax return microdata. We pay special attention to business income, which dominates at the top of the distribution. Our analysis includes not only distributed profits, but also the large proportion of accrued profits retained by firms. Our most conservative estimate of the income share received by the top 1 per cent of Chileans, constructed directly from income reported to the tax agency, is 15 per cent for 2005 and 2009 – the fifth highest share reported in the top incomes literature. When distributed profits are adjusted for widespread under-reporting, we estimate that the top 1 per cent share increases to roughly 22 per cent. When distributed profits are replaced by accrued profits in our definition of income, we obtain 19 per cent as our lowest estimate for the top 1 per cent share. Despite this impressive income concentration, the rich in Chile pay modest effective income tax rates. The top 1 per cent pay an average effective rate of 16-17 per cent when distributed profits are not adjusted for under-reporting, and less than 9 per cent when distributed profits are adjusted to national accounts. When we include corporate income tax and accrued profits in our analysis (without adjustments), the effective tax burden for the top 1 per cent is 16 per cent.
TL;DR: In this article, a decomposition of historical changes in income distribution and redistribution measures into the immediate effect of tax-transfer policy reforms in the absence of behavioral responses, the effect of labor supply responses induced by these reforms, and a third component allowing us to explore the impact of changes in the distribution of a wide range of determinants, including the effects of employment changes not induced by policy reforms.
Abstract: In recent decades income inequality has increased in many developed countries but the role of tax and transfer reforms is often poorly understood. We propose a new method allowing for the decomposition of historical changes in income distribution and redistribution measures into: (i) the immediate effect of tax-transfer policy reforms in the absence of behavioral responses; (ii) the effect of labor supply responses induced by these reforms; and (iii) a third component allowing us to explore the effect of changes in the distribution of a wide range of determinants, including the effect of employment changes not induced by policy reforms. The application of the decomposition to Australia reveals that the direct effect of tax-transfer policy reforms accounts for half of the observed increase in income inequality between 1999 and 2008, while the increased dispersion of wages and capital incomes also played an important role.
TL;DR: In this paper, the authors analyzed German top income mobility using micro-level panel data of personal income tax returns which are highly representative for top income taxpayers for the years 2001-06 and assessed in three dimensions: persistence in top income fractiles and its stability over time, measures of individual mobility that are not dependent on the fractile size, and mobility's impact on top income shares.
Abstract: I analyze German top income mobility using micro-level panel data of personal income tax returns which are highly representative for top income taxpayers for the years 2001–06. Top income mobility is assessed in three dimensions: (i) persistence in top income fractiles and its stability over time, (ii) measures of individual mobility that are not dependent on the fractile size: the degree of mobility between equally sized groups and mobility in ranks, and (iii) mobility's impact on top income shares. Persistence in top income fractiles is comparatively high and fairly stable across the analyzed period. Top income recipients are less prone to downward mobility and see less variation in annual ranks than less rich tax units. Mobility's impact on income concentration is moderate. The top percentile's share is reduced by roughly 5 percent over six years.
TL;DR: This paper performed the first comprehensive scal incidence analyses in Brazil and the US, including direct cash and food transfers, targeted housing and heating subsidies, public spending on education and health, and personal income, payroll, corporate income, property, and expenditure taxes.
Abstract: We perform the rst comprehensive scal incidence analyses in Brazil and the US, including direct cash and food transfers, targeted housing and heating subsidies, public spending on education and health, and personal income, payroll, corporate income, property, and expenditure taxes. In both countries, primary spending is close to 40 percent of GDP. The US achieves higher redistribution through direct taxes and transfers, primarily due to underutilization of the personal income tax in Brazil and the fact that Brazil’s highly progressive cash and food transfer programs are small while larger transfer programs are less progressive. However, when health and non-tertiary education spending are added to income using the government cost approach, the two countries achieve similar levels of redistribution. This result may be a reection of better-o households in Brazil opting out of public services due to quality concerns rather than a result of government eort to make spending more equitable.
TL;DR: In this article, the role of product and marketing innovation for productivity growth is addressed using survey and register data for the Danish economy and it is argued that marketing and product innovation are complementary inputs affecting the demand curve of the firm and that innovation is an skill-intensive activity.
Abstract: The role of product and marketing innovation for productivity growth is addressed using survey and register data for the Danish economy. It is argued that marketing and product innovation are complementary inputs affecting the demand curve of the firm and that innovation is an skill-intensive activity. It is found that product and marketing innovation in skill-intensive firms results in significantly faster productivity growth that in unskilled-intensive firms that introduce these types of innovation. Moreover, it is found that firms that perform product innovation but no marketing innovation do not have a signficant growth effect from this innovation activity. Even though the majority of innovative firms also perform organizational innovation, we are able to rule out the concern that it is organizational innovation that drives the growth effect of product and marketing innovations.
TL;DR: In this paper, the authors derived performance-and expenditure-based estimates of intangible capital and measured the extent to which intangible capital is captured by the equity market measures of firm value, using occupational information available in the Finnish linked employer-employee data for the 1997-2011 period.
Abstract: This study derives performance- and expenditure-based estimates of intangible capital and measures the extent to which intangible capital is captured by the equity market measures of firm value. Intangible capital is evaluated using occupational information available in the Finnish linked employer–employee data for the 1997–2011 period. The performance-based organizational investment in value added is approximately 3 percent; RD both increase the market value of firms beyond the level that can be explained by standard economic analysis.
TL;DR: This paper investigated the relationship between social interaction and household finances using the British Household Panel Survey using a Bayesian statistical framework to simultaneously explore both sides of the household balance sheet, and found that social interaction is associated with households holding larger amounts of debt and assets.
Abstract: We investigate the relationship between social interaction and household finances using the British Household Panel Survey We explore the relationship between a wide range of aspects of household finances and social interaction, rather than focusing on one particular facet of household finances, such as the holding of stocks and shares We develop a Bayesian statistical framework to simultaneously explore both sides of the household balance sheet—liabilities and assets Additionally, we allow the influence of social interaction on household finances to be time dependent, enabling us to model the effects of social interaction from a dynamic perspective We also develop a two-part model to jointly investigate the influence of social interaction on the amount of different types of debt and financial assets held conditional on holding the different types of debt and assets Our analysis suggests that social interaction is associated with households holding larger amounts of debt and assets
TL;DR: In this paper, the authors used a novel dataset based on administrative data sources, which provides a more accurate identification of eligible households and take-up, and documents non-take-up of a compensation to which nearly 5 million Dutch households are entitled.
Abstract: It is common for individuals not to take up welfare benefits. The most common explanation is that people make a rational choice between the utility they expect from the benefit and the effort required to take-up. Most studies utilize surveys, which are subject to misreporting and measurement errors, to determine eligibility and non-take-up rates. This study uses a novel dataset based on administrative data sources, which provides a more accurate identification of eligible households and take-up. Furthermore, this study documents non-take-up of a compensation to which nearly 5 million Dutch households are entitled. The richness of the data allowed us to conduct a detailed analysis of key drivers of non-take-up. The analysis largely confirms the transaction-costs hypotheses. However, we found an unexpected effect. Although, in general, the probability of take-up increases when income decreases, those with the lowest income or wealth do not have the highest probability of take-up.
TL;DR: In this paper, the authors developed a new tool, the isograph, to focus on local inequality and illustrate these variations, which yields three coefficients which summarize the shape of inequality: a main coefficient, α, which measures inequality at the median; and two correction coefficients, β and γ, which pick up any differential curvature at the top and bottom of the distribution.
Abstract: Inequality is anisotropic: its intensity varies by income level. We here develop a new tool, the isograph, to focus on local inequality and illustrate these variations. This method yields three coefficients which summarize the shape of inequality: a main coefficient, α, which measures inequality at the median; and two correction coefficients, β and γ, which pick up any differential curvature at the top and bottom of the distribution. The analysis of a set of 232 microdata samples from 41 different countries in the LIS datacenter archive allows us to provide a systematic overview of the properties of the ABG (α β γ) coefficients, which are compared to a set of standard indices including Atkinson indices, generalized entropy, Wolfson polarization, and the GB2 distribution. This method also provides a smoothing tool that reveals the differences in the shape of distributions (the strobiloid) and how these have changed over time.
TL;DR: In this article, the authors measured the size of the shadow economy in North Cyprus by using micro-econometric approaches and then calculated its implications on national accounts and fiscal balances and found that self-employed and privately employed individuals underreported their income levels by 20 percent and 13 percent, respectively, compared with publicly employed individuals.
Abstract: In this paper we measure the size of the shadow economy in North Cyprus by using micro-econometric approaches and then calculate its implications on national accounts and fiscal balances. There is a relatively new strand of literature that focuses on comparing income–expenditure patterns of households to calculate the degree of underreporting of income levels by self-employed and privately employed individuals, as compared with public servants. We use the 2008 Household Budget Survey of North Cyprus and analyze the differences in food consumption patterns among three kinds of employees: self-employed, privately employed, and public. We found that self-employed and privately employed individuals underreport their income levels by 20 percent and 13 percent, respectively, compared with publicly employed individuals. This has important implications for the aggregate economy in North Cyprus, where we estimate that the shadow economy created by underreporting is as much as 8.6 percent of GNP and 11.1 percent of total tax revenue.
TL;DR: In this article, a cross-country comparison of Germany and the U.S. showed that the German intergenerational mobility is higher for the sons at the lowest quartile of the sons' earnings distribution in both countries.
Abstract: Motivated by contradictory evidence on intergenerational mobility in Germany, I present a cross-country comparison of Germany and the U.S., reassessing the question of whether intergenerational mobility is higher in Germany than in the U.S. I can reproduce the standard result from the literature, which states that the German intergenerational elasticity estimates are lower than those for the U.S. However, based on highly comparable data, even a reasonable degree of variation in the sampling rules leads to similar estimates in both countries. I find no evidence for non-linearities along the fathers' earnings distribution. In contrast, the analysis shows that mobility is higher for the sons at the lowest quartile of the sons' earnings distribution in both countries. In Germany this result is mainly driven by a high downward mobility of sons with fathers in the upper middle part of the earnings distribution. The corresponding pattern is clearly less pronounced in the U.S.
TL;DR: The authors studied the distributional impact of commodity price shocks over the short and the very long run using a GARCH model and found that Australia experienced more volatility than many commodity exporting developing countries over the periods 1865-1940 and 1960-2008.
Abstract: This paper studies the distributional impact of commodity price shocks over the short and the very long run. Using a GARCH model, we find that Australia experienced more volatility than many commodity exporting developing countries over the periods 1865–1940 and 1960–2008. We conduct cointegration tests to assess the commodity price shock inequality nexus. A single equation error correction model suggests that commodity price shocks increase the income share of the top 1, 0.05, and 0.01 percent in the short run. The very top end of the income distribution benefits from commodity booms disproportionately more than the rest of the society. The short run effect is mainly driven by wool and mining and not agricultural commodities. A sustained increase in the price of renewables (wool) reduces inequality whereas the same for non-renewable resources (minerals) increases inequality. We expect that the initial distribution of land and mineral resources explains the asymmetric result.
TL;DR: In this article, a Papier analysing Lohnungleichheit and the Lohnmobilitat in Europe untersucht is presented, in which an analysis of the Bedeutung of individuellen and Haushaltscharakteristika fur Transitionen innerhalb der Lohnverteilung is presented.
Abstract: Auf Grundlage der Statistik der Europaischen Union uber Einkommen und Lebensbedingungen wird in diesem Papier die Lohnungleichheit und die Lohnmobilitat in Europa untersucht. Eine Zerlegung der Ungleichheit in Ungleichheit innerhalb und zwischen Bevolkerungsgruppen liefert Erkenntnisse daruber, inwiefern Lohnungleichheit und -mobilitat durch beobachtbare Eigenschaften erklart werden konnen. Daruber hinaus werden die Bedeutung von individuellen und Haushaltscharakteristika fur Transitionen innerhalb der Lohnverteilung analysiert. Letztlich wird der Zusammenhang von Institutionen mit Lohnungleichheit, Lohnmobilitat und Lohntransitionen untersucht. Die Ergebnisse der Analyse lauten wir folgt. Mobilitat verringert Lohnungleichheit. Obwohl ein hoher Anteil der Lohnungleichheit auf unbeobachtbare Faktoren zuruckzufuhren ist, findet der ausgleichende Effekt von Mobillitat hauptsachlich zwischen den Bevolkerungsgruppen statt. Zudem spielen sowohl individuelle als auch Haushaltscharakteristika eine wichtige Rolle fur Lohntransitionen. Letztlich zeigen die Ergebnisse grose Unterschiede zwischen den europaischen Landern, die sich teilweise auf die institutionellen Gegebenheiten der nationalen Arbeitsmarkte zuruckfuhren lassen.
TL;DR: This article examined the relationship between parental wealth and intergenerational income mobility for black and white families and found that total parental wealth is positively associated with upward mobility for low-income white families, but is not associated with reduced likelihood of downward mobility for white families from the top half of the income distribution.
Abstract: Utilizing longitudinal data from the Panel Study of Income Dynamics (PSID), this paper examines the relationship between parental wealth and intergenerational income mobility for black and white families. I find that total parental wealth is positively associated with upward mobility for low-income white families, but is not associated with reduced likelihood of downward mobility for white families from the top half of the income distribution. Conversely, I find that total parental wealth does not have the same positive association for low-income black families, while home ownership may have negative associations with the likelihood of upward mobility for these families. However, for black families from the top half of the income distribution, home equity is associated with a decreased likelihood of downward mobility, suggesting a heterogeneous relationship between home ownership and mobility for black families.
TL;DR: In this article, the authors estimate top wealth shares for Australia from World War I until the present day, and find that the top 1 percent share declined by two-thirds from 1915 until the late 1960s, and rose from the late 1970s to 2010.
Abstract: Combining data from surveys, inheritance tax records, and rich lists, we estimate top wealth shares for Australia from World War I until the present day. We find that the top 1 percent share declined by two-thirds from 1915 until the late 1960s, and rose from the late 1970s to 2010. The recent increase is sharpest at the top of the distribution, with the top 0.001 percent wealth share tripling from 1984 to 2012. The trend in top wealth shares is similar to that in Australian top income shares (though the drop in the first half of the twentieth century is larger for wealth than income shares). Since the early twentieth century, top wealth shares in Australia have been lower than in the U.K. and U.S.
TL;DR: In this article, the authors provide a unique analysis of the evolution of gender and racial occupational segregation in Brazil from 1987-2006, using a novel dataset, constructed by harmonizing national household data over twenty years, which provides extensive new insights in the nature and evolution of occupational segregation over time, while also providing important new insights into the forces driving these changes.
Abstract: This paper provides a unique analysis of the evolution of gender and racial occupational segregation in Brazil from 1987-2006. Drawing on a novel dataset, constructed by harmonizing national household data over twenty years, the paper provides extensive new insights in the nature and evolution of occupational segregation over time, while also providing important new insights into the forces driving these changes. The results presented here expand upon existing research in the developing world in several directions. First, the new dataset constructed for this study allows the analysis to cover a longer time period than has previously been possible. Second, the analysis explores both gender and racial segregation side by side. Third, all of the analysis is conducted for the labour market as a whole, and disaggregated into the formal, informal and self-employed labour markets. Fourth, the paper decomposes the key driving forces that lie behind trends in occupational segregation. The paper presents three major findings: first, gender segregation is always considerably greater than racial occupational segregation, but racial segregation has been more persistent over time and has several features that make it comparatively worrisome; second, while occupational segregation is declining by both gender and race, the decline has been greater in the formal labour market. Third, the decomposition of segregation measures over time reveals that changes in the internal gender and racial composition of occupations have driven improvements over time. These important differences between formal and non-formal labour markets provide preliminary insights into the possible importance of formal labour market policies and institutions in shaping outcomes.
TL;DR: In this paper, the importance of each source of income in explaining the observed decline in income inequality between 2002 and 2011 in five Latin American countries was investigated, and the role of the process of formalization that has taken place in regional labor markets, separating formal and informal wages and considering self-employment incomes.
Abstract: The decline in inequality observed in most Latin American countries after 2002 was surprisingly good news, particularly given that most developed countries were experiencing a rise in inequality at that time. Various arguments have been put forward to explain this decline, but there is still no consensus on the most plausible explanation. This article contributes to the ongoing discussion by performing inequality decompositions by factor components. We estimate the importance of each source of income in explaining the observed decline in income inequality between 2002 and 2011 in five Latin American countries. Specifically, we explore the role of the process of formalization that has taken place in regional labor markets, separating formal and informal wages and considering self-employment incomes. In the five countries studied here informal wages and self-employment income contributed to decreasing inequality. Formal sector wages, on the other hand, fostered inequality in all countries except Bolivia.
TL;DR: The authors introduced a concept of inequality comparisons with ordinal bivariate categorical data, where one population is more unequal than another when they have common arithmetic median outcomes and the first can be obtained from the second by correlation-increasing switches and/or median-preserving spreads.
Abstract: This paper introduces a concept of inequality comparisons with ordinal bivariate categorical data. In our model, one population is more unequal than another when they have common arithmetic median outcomes and the first can be obtained from the second by correlation-increasing switches and/or median-preserving spreads. For the canonical 2 × 2 case (with two binary indicators), we derive a simple operational procedure for checking ordinal inequality relations in practice. As an illustration, we apply the model to childhood deprivation in Mozambique.
TL;DR: In this article, the authors explored the extent to which products follow systematic pricing patterns over their life cycle and the impact this has on the measurement of inflation and found that the life cycle bias leads to the underestimation of inflation by around 0.30 percentage points each year for the products examined.
Abstract: The paper explores the extent to which products follow systematic pricing patterns over their life cycle and the impact this has on the measurement of inflation. Using a large U.S. scanner data set on supermarket products and applying flexible regression methods, we find that on average prices decline as items age. This life cycle price change is often attributed to quality difference in the construction of CPI as items are replaced due to disappearance or during sample rotations. This introduces a systematic bias in the measurement of inflation. For our data we find that the life cycle bias leads to the underestimation of inflation by around 0.30 percentage points each year for the products examined.
TL;DR: In this paper, a framework is proposed to disentangle cohort, age, and period effects and the empirical analysis is based on the U.S. Consumer Expenditure Survey data.
Abstract: This paper examines the relationship between non-durable consumption, income, and wealth (housing and financial) allowing explicitly for generational heterogeneity. A framework is proposed to disentangle cohort, age, and period effects and the empirical analysis is based on the U.S. Consumer Expenditure Survey data. We find that there are significant generational differences and the results highlight the range of elasticities implicit in results presented, thus far, by age groups. Moreover, we find supporting evidence of humped shaped age profiles for the elasticity of consumption with respect to income and the importance of financial wealth for those aged 60+. The framework also allows us to generate cohort profiles which draw attention to the negative role of housing wealth for generation X, and period profiles which reinforce the role of financial wealth for the baby-boom generation.