Open AccessWhy are Households that Report the Lowest Incomes So Well‐off?
Author(s) -
Brewer Mike,
Etheridge Ben,
O’Dea Cormac
Publication year - 2017
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/ecoj.12334
Subject(s) - microdata (statistics) , economics , consumption (sociology) , consumption smoothing , poverty , demographic economics , phenomenon , permanent income hypothesis , labour economics , marital status , economic growth , macroeconomics , sociology , population , life cycle hypothesis , unemployment , social science , physics , demography , quantum mechanics , census
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.