Income Mobility, Income Risk, and Welfare
This paper presents a framework for the quantitative analysis of individual income dynamics, mobility, and welfare, with ex ante identical individuals facing a stochastic income process and market incompleteness, implying that they are unable to insure against persistent shocks to income. We show ho...
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Published by Oxford University Press on behalf of the World Bank
2020
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| Online Access: | http://hdl.handle.net/10986/34867 |
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okr-10986-348672021-04-23T14:02:10Z Income Mobility, Income Risk, and Welfare Krebs, Tom Krishna, Pravin Maloney, William F. INCOME MOBILITY INCOME RISK WELFARE This paper presents a framework for the quantitative analysis of individual income dynamics, mobility, and welfare, with ex ante identical individuals facing a stochastic income process and market incompleteness, implying that they are unable to insure against persistent shocks to income. We show how the parameters of the income process can be estimated using repeated cross-sectional data with a short panel dimension and use a simple consumption-saving model for quantitative analysis of mobility and welfare. Our empirical application, using data on individual incomes from Mexico, provides striking results. Most of the measured income mobility is driven by measurement error or transitory income shocks and is therefore (almost) welfare neutral. Only a small part of measured income mobility is due to either welfare-reducing income risk or welfare-enhancing catching-up of low-income individuals with high-income individuals, both of which, nevertheless, have economically significant effects on social welfare. Strikingly, roughly half of the mobility that cannot be attributed to measurement error or transitory income shocks is driven by welfare-reducing persistent income shocks. Decomposing mobility into its fundamental components is thus crucial from the standpoint of welfare evaluation. 2020-12-03T21:35:09Z 2020-12-03T21:35:09Z 2019-06 Journal Article World Bank Economic Review 1564-698X http://hdl.handle.net/10986/34867 CC BY-NC-ND 3.0 IGO http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Published by Oxford University Press on behalf of the World Bank Publications & Research :: Journal Article Publications & Research Latin America & Caribbean Mexico |
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Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
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World Bank |
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INCOME MOBILITY INCOME RISK WELFARE |
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INCOME MOBILITY INCOME RISK WELFARE Krebs, Tom Krishna, Pravin Maloney, William F. Income Mobility, Income Risk, and Welfare |
| geographic_facet |
Latin America & Caribbean Mexico |
| description |
This paper presents a framework for the quantitative analysis of individual income dynamics, mobility, and welfare, with ex ante identical individuals facing a stochastic income process and market incompleteness, implying that they are unable to insure against persistent shocks to income. We show how the parameters of the income process can be estimated using repeated cross-sectional data with a short panel dimension and use a simple consumption-saving model for quantitative analysis of mobility and welfare. Our empirical application, using data on individual incomes from Mexico, provides striking results. Most of the measured income mobility is driven by measurement error or transitory income shocks and is therefore (almost) welfare neutral. Only a small part of measured income mobility is due to either welfare-reducing income risk or welfare-enhancing catching-up of low-income individuals with high-income individuals, both of which, nevertheless, have economically significant effects on social welfare. Strikingly, roughly half of the mobility that cannot be attributed to measurement error or transitory income shocks is driven by welfare-reducing persistent income shocks. Decomposing mobility into its fundamental components is thus crucial from the standpoint of welfare evaluation. |
| format |
Journal Article |
| author |
Krebs, Tom Krishna, Pravin Maloney, William F. |
| author_facet |
Krebs, Tom Krishna, Pravin Maloney, William F. |
| author_sort |
Krebs, Tom |
| title |
Income Mobility, Income Risk, and Welfare |
| title_short |
Income Mobility, Income Risk, and Welfare |
| title_full |
Income Mobility, Income Risk, and Welfare |
| title_fullStr |
Income Mobility, Income Risk, and Welfare |
| title_full_unstemmed |
Income Mobility, Income Risk, and Welfare |
| title_sort |
income mobility, income risk, and welfare |
| publisher |
Published by Oxford University Press on behalf of the World Bank |
| publishDate |
2020 |
| url |
http://hdl.handle.net/10986/34867 |
| _version_ |
1764481823706972160 |