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.
Authors
![Mike Brewer](/sites/default/files/styles/square_desktop/public/2022-07/Mike%20Brewer.jpg?itok=3JdYlHV1)
Mike Brewer
![Ben Etheridge](/sites/default/files/styles/square_desktop/public/2022-07/Ben_Etheridge.jpg?itok=wmOAgBOH)
Research Associate University of Essex
Ben joined the IFS in 2006 as a PhD scholar and is now a Research Associate, alongside his position as Lecturer at the University of Essex.
![Cormac O'Dea](/sites/default/files/styles/square_desktop/public/2022-07/Cormac%20O%27Dea.jpg?itok=-0xKr2ar)
Research Associate Yale University
Cormac is a Research Associate of the IFS, an Assistant Professor of Economics at the Yale University and Research Fellow at the NBER.
Journal article details
- DOI
- 10.1111/ecoj.12334
- Publisher
- Wiley
- Issue
- October 2017
Suggested citation
M, Brewer and B, Etheridge and C, O'Dea. (2017). 'Why are Households that Report the Lowest Incomes So Well-off?' (2017)
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