Income Mobility, Income Risk, and Welfare

creativeworkseries.issn 1564-698X Krebs, Tom Krishna, Pravin Maloney, William F. 2020-12-03T21:35:09Z 2020-12-03T21:35:09Z 2019-06
dc.description.abstract 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. en
dc.identifier.citation World Bank Economic Review
dc.identifier.issn 1564-698X
dc.publisher Published by Oxford University Press on behalf of the World Bank
dc.relation.ispartofseries World Bank Economic Review
dc.rights CC BY-NC-ND 3.0 IGO
dc.rights.holder World Bank
dc.subject INCOME RISK
dc.subject WELFARE
dc.title Income Mobility, Income Risk, and Welfare en
dc.type Journal Article en
dc.type Article de journal fr
dc.type Artículo de revista es
dspace.entity.type Publication 2020-12-03
okr.doctype Publications & Research :: Journal Article
okr.doctype Publications & Research
okr.identifier.doi 10.1093/wber/lhx022
okr.journal.nbpages 375-93
okr.language.supported en
okr.peerreview Academic Peer Review
okr.region.administrative Latin America & Caribbean Mexico
okr.topic Poverty Reduction :: Inequality
okr.topic Poverty Reduction :: Poverty Monitoring & Analysis
okr.topic Poverty Reduction :: Pro-Poor Growth
okr.unit Equitable Growth, Finance and Institutions Global Practice
okr.volume 33(2)
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relation.isJournalVolumeOfPublication cc3fec42-4188-4d2a-87f3-7549dc3d3348
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