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Why is consumption more log normal than income? Gibrat's law revisited

Batistin, E.; Blundell, R.; Lewbel, A.; (2007) Why is consumption more log normal than income? Gibrat's law revisited. (IFS Working Papers W07/08). Institute for Fiscal Studies: London, UK. Green open access

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Abstract

Significant departures from log normality are observed in income data, in violation of Gibrat’s law. We identify a new empirical regularity, which is that the distribution of consumption expenditures across households is, within cohorts, closer to log normal than the distribution of income. We explain these empirical results by showing that the logic of Gibrat’s law applies not to total income, but to permanent income and to maginal utility. These findings have important implications for welfare and inequality measurement, aggregation, and econometric model analysis.

Type: Working / discussion paper
Title: Why is consumption more log normal than income? Gibrat's law revisited
Open access status: An open access version is available from UCL Discovery
Publisher version: http://www.ifs.org.uk/publications/browse/type/wp
Language: English
Keywords: JEL classification: D3, D12, D91. Consumption, income, lognormal, inequality, Gibrat
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14798
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