Social Welfare Orderings: A Life-Cycle Perspective

Consider the problem of measuring long-run household welfare and investigating welfare orderings from cross-section data. Life-cycle theories emphasize that consumption is allocated intertemporally on the basis of a long-term concept of resources, which differs from household income. Expenditure is also subject to transitoriness because diaries on spending are kept for a period of two to four weeks. Via joint modelling of household income and expenditure, we provide bounds for the deficit curve of lifecycle incomes using two distinct predictors of this unobservable. A third predictor generates a deficit curve also lying within these bounds.