Why are Households that Report the Lowest Incomes so Well‐Off?

26 Pages Posted: 25 Oct 2017

See all articles by Mike Brewer

Mike Brewer

University of Essex - Institute for Social and Economic Research (ISER)

Ben Etheridge

University of Essex

Cormac O’Dea

Institute for Fiscal Studies (IFS)

Date Written: October 2017

Abstract

We document that households in the UK with extremely low measured income tend to spend much more than those with merely moderately low income. This phenomenon is evident throughout three decades worth of microdata and across different employment states, levels of education and marital statuses. Of the likely explanations, we provide several arguments that discount over‐reporting of expenditure and argue that under‐reporting of income plays the major role. In particular, by using a dynamic model of consumption and saving, and paying special attention to poverty dynamics, we show that consumption smoothing cannot explain all the apparent dissaving.

Suggested Citation

Brewer, Mike and Etheridge, Ben and O’Dea, Cormac, Why are Households that Report the Lowest Incomes so Well‐Off? (October 2017). The Economic Journal, Vol. 127, Issue 605, pp. F24-F49, 2017. Available at SSRN: https://ssrn.com/abstract=3058374 or http://dx.doi.org/10.1111/ecoj.12334

Mike Brewer (Contact Author)

University of Essex - Institute for Social and Economic Research (ISER) ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Ben Etheridge

University of Essex

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Cormac O’Dea

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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