Two Essays on Income, Consumption and Risk-Sharing in Taiwan

This study is devoted to the analysis of consumption-risk sharing and income inequality among Taiwanese households. In the first part of this study, I examine risk sharing during 1985-2006. I show that household-head income of low-education cohorts declined while those of higher education cohorts increased during 1997-2001; by comparison, both higher and low-education cohorts experienced similar growth in household-head income during 1985-1994 and 2002-2006. Therefore, I ask the question that whether these changes in relative growth in household-head income affected household consumption. Full risk sharing predicts that growth in household consumption should not be affected by idiosyncratic shocks to household-head income because the households could share risk through various channels such as transfers and the financial markets. Full risk sharing was rejected among Taiwanese households during 1985-2006. Nevertheless, more than sixty percent of the households' consumption risk was insured during this period. In addition, the level of risk sharing was higher during 1997-2001 when compared to that during 2002-2006. I decompose the risk-sharing channels into sub-periods and find that a drop in the amount of risk sharing achieved through income of household members was the main reason that risk-sharing during 2002-2006 was weaker than that during 1997-2001. In the second part of this study, I examine the changes in the individual and household-level income inequality. On the individual level, the difference in the average wage between male and female workers was shrinking during 1980-2011. In addition, the changes in the gender wage differences were more important than those in wage differences across education or age groups in explaining the changes in the individual-level inequality. On the household level, I show that household-income inequality was increasing in Taiwan in the late-1990s. Nevertheless, net private transfers and net cash benefits from social insurances lowered the household-level income inequality.