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Why are households that report the lowest incomes so well-off

Brewer, M and Etheridge, Ben and O'Dea, C (2013) Why are households that report the lowest incomes so well-off. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester.


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Using data from the Living Costs and Food Survey in the UK over 1978-2009 we document that households with extremely low measured income (below 10% of median income) on average spend much more than those with merely moderately low income (those below 50% of median income): in short, the graph of median expenditure against income contains a sharp non-monotonicity (or `tick'). We show that this tick appears, to a greater or lesser extent, over the whole period 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. Finally, and whatever the reason for the tick, we document that low consumption is better correlated with other measures of living standards than having low income.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: Consumption; Measuring living standards; Poverty
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
Faculty of Social Sciences > Institute for Social and Economic Research
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 18 Mar 2014 13:44
Last Modified: 06 Jan 2022 13:31

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