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Studying Consumption with the Panel Study of Income Dynamics: Comparisons with the Consumer Expenditure Survey and an Application to the Intergenerational Transmission of Well-being.

February 2006

Kerwin Kofi Charles, University of Chicago Sheldon Danziger, University of Michigan, Geng Li, Federal Reserve Board Robert F. Schoeni, University of Michigan.

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Beginning in 1999, the Panel Study of Income Dynamics (PSID) added new questions about several categories of consumption expenditure. The PSID now covers items that constitute more than seventy percent of total expenditure measured in the Consumer Expenditure Survey (CE). We show that expenditure for each of the broad categories in the PSID aligns closely with corresponding measures from the CE. Using the new PSID data, we impute total expenditure in the PSID and show that this is also very close to total measured CE expenditure. For several distinct categories and for total consumption, we show that cross-sectional life cycle estimates of household expenditure activity are very similar across the two surveys. Finally, we illustrate the unique research value of the PSID for studying consumption by exploiting the survey’s longitudinal design and genealogical structure to estimate the intergenerational elasticity of consumption expenditure, which is found to be 0.32-0.34. Financial support was received from a grant to the National Poverty Center at the University of Michigan from the Assistant Secretary for Planning and Evaluation, U. S. Department of Health and Human Services. We thank Laurie Pounder and Jonathan Fisher for assisting with the validation of the mapping of UCC codes from the CE into the PSID. We also thank Richard Bavier, Rebecca Blank, Jonathan Fischer, Gary Solon, James Sullivan, and seminar participants at the Bureau of Labor Statistics for comments. Address correspondence to Robert Schoeni, University of Michigan, Institute for Social Research, Ann Arbor, MI 48104; bschoeni@umich.edu. Any views expressed in this paper are those of the authors and not necessarily those of the National Poverty Center or the Federal Reserve Board or other members of its staff.

Poverty Trends and Measurement