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Consumption Inequality and Intra-household Allocations

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.

Authors: 
Jeremy Lise, University College London
Shannon Seitz
Publication Date: 
January, 2011
HCEO Working Groups: 
Publication Type: 
Journal: 
Review of Economic Studies
Volume: 
78
Issue Number: 
1
Pages: 
328-355
Document Number: 
R0049