Consumption insurance pattern differences between China and the US: The role of self- and external insurance

Abstract

In this letter, we measure permanent income shocks, transitory income shocks, and consumption changes at the household level to explore the role of self-insurance and external insurance in explaining the different consumption insurance patterns between Chinese households and US households. We find that household assets have larger effects on increasing the household's smoothing of permanent income shocks for Chinese households, while public transfers decrease US households’ sensitivity to transitory income shocks. The role of private transfers is not statistically significant for either US or Chinese households.