Income volatility

In economics, income volatility is the degree by which an individual or household's income is likely to change. According to Donald R. Haurin , one uses the coefficient of variation of the annual net income of a household over time. The first work on the topic can be traced back to Bruce A. Moffitt , Peter Gottschalk and Jacob S. Hacker , who began investigating the topic in the 1990s.

Obviously, downward changes in income are seen as problematic, for example in connection with the banking industry ( credit risk ) and the efficiency of social security systems. In terms of economic policy , income volatility plays a role insofar as an increase in net income (e.g. through wage increases or tax relief) does not immediately lead to increased domestic demand against the background of high income volatility .

In the United States , volatility increased 88% between 1978 and 2000. US middle class incomes in the 1970s fluctuated by 16% p. a., but already by 30% in the 1990s. In the lower fifth of society, the fluctuation increased from 25% to 50% over the same period.

A study in twelve EU countries shows that high income volatility significantly increases the credit default risk for real estate loans, even for those with high incomes. The authors of the study assume that volatility, not the absolute level of income, is an indicator of high risk of default.

Tax experts point out that with a progressive taxation of income, recipients of volatile incomes bear a higher tax burden in the long term than recipients of even income.

swell

Haurin, DR , 1991, Income variability, homeownership, and housing demand , J. Housing Econ. 1, 60-74
Luis Diaz-Serrano , 2004: Income Volatility and Residential Mortgage Delinquency: Evidence from 12 EU Countries , National University of Ireland Maynooth, IZA Bonn, CREB Barcelona
Peter R. Orszag , 2003: Taxes and Income Volatility , Tax Notes p. 1039, Tax Policy Center, Urban Institute and Brookings Institution