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Intertemporal Choice and Inequality

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  • Deaton, A.
  • Paxson, C.

Abstract

The permanent income hypothesis implies that, for any cohort of people, inequality in consumption and income should grow with age, a prediction that is here confirmed using data from eleven years of household survey data from the United States, twenty-two years from Great Britain, and fourteen years from Taiwan. In the permanent income hypothesis, the increase in inequality reflects the cumulative effect of luck on consumption. Other models of intertemporal choice--such as those with strong precautionary motives or liquidity constraints--can limit or even prevent the spread of inequality, as can insurance arrangements that share risk across individuals. Copyright 1994 by University of Chicago Press.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Deaton, A. & Paxson, C., 1993. "Intertemporal Choice and Inequality," Papers 168, Princeton, Woodrow Wilson School - Development Studies.
    • Handle: RePEc:fth:priwds:168
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    References listed on IDEAS

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    More about this item

    Keywords

    consumption ; economic models;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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