Analyzing and Comparing the Impact of Alternative Concepts of Resources in Distributional Studies: Greece, 2004/5

Abstract

The usual practice in empirical distributional studies is to use either disposable income or consumption expenditure as a proxy for welfare. Essentially, both variables are used as approximations of the unobserved “permanent income” of the population members. This paper exploits the information in the Greek Household Budget Survey of 2004/5 and constructs an indicator of “permanent income” using a latent variable approach. The distributions of disposable income, consumption expenditure and permanent income are compared regarding their level and structure of inequality and poverty. Both inequality and poverty appear to be substantially lower using the distribution of permanent income instead of either the distribution of disposable income or the distribution of consumption expenditure, while differences are also evident when decomposition analysis of inequality and poverty is employed using appropriate indices.