Consumption and Income Inequality in Australia

It has been argued that consumption is a more appropriate measure of household wellbeing than income or earnings. Using four Household Expenditures Surveys collected by the Australian Bureau of Statistics between 1975 and 1993, we examine trends in consumption inequality among Australian households and compare consumption inequality with income inequality. We find that consumption is much more equal than income. Further, while both income and consumption inequality rose by statistically and economically significant amounts over the period covered by our survey, consumption inequality rose by much less. For example, the Gini coefficient for equivalent gross income inequality rose by 0.043 (17%) while the Gini coefficient for equivalent nondurable consumption rose by 0.019 (9%). We discuss possible interpretations of these differences. Through a series of specification checks we are able to rule out several ways in which the result might be spurious, or an artifact of our methodological choices. One interpretation of the results is that some income inequality in Australia reflects transitory fluctuations which households can smooth, and that some of the growth in income inequality over the study period reflects an increase in these transitory fluctuations.

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