Consumption Inequality and the Age of Household Heads in Developing Countries: A Comparative Study of Thailand, India, and Pakistan

It is well known that within-cohort consumption inequality increases with the age of household heads in developed countries. This pattern is consistent with the permanent income hypothesis, according to which households smooth consumption through credit markets in the short run against transient shocks and in the longer run over the life cycle. This paper compares evidence regarding the age effects in within-cohort inequality calculated from repeated cross-section data in Thailand, India, and Pakistan, where credit and insurance markets are underdeveloped. We find a pattern previously unnoticed in the literature that within-cohort inequality in consumption often decreases with age, and the divergence of the pattern from those observed in developed countries is larger among uneducated households. We provide an interpretation that the decreasing age effect in consumption inequality within cohort, found widely in low-income regions and classes in Asia, is consistent with partial insurance models, either with within-cohort inequality in income decreasing with age, or with insurance efficiency increasing with age.