02352cas a2200265 a 4500 AALejournalIMF013337 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475551433 1018-5941 BD-DhAAL BD-DhAAL Krebs, Tom. Income Mobility and Welfare / Tom Krebs, Pravin Krishna, William Maloney. Washington, D.C. : International Monetary Fund, 2013. 1 online resource (28 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper develops a framework for the quantitative analysis of individual income dynamics, mobility and welfare. Individual income is assumed to follow a stochastic process with two (unobserved) components, an i.i.d. component representing measurement error or transitory income shocks and an AR(1) component representing persistent changes in income. We use a tractable consumption-saving model with labor income risk and incomplete markets to relate income dynamics to consumption and welfare, and derive analytical expressions for income mobility and welfare as a function of the various parameters of the underlying income process. The empirical application of our framework using data on individual incomes from Mexico provides striking results. Much of measured income mobility is driven by measurement error or transitory income shocks and therefore (almost) welfare-neutral. A smaller part of measured income mobility is due to either welfare-reducing income risk or welfare-enhancing catching-up of low-income individuals with high-income individuals, both of which have economically significant effects on social welfare. Decomposing mobility into its fundamental components is thus seen to be crucial from the standpoint of welfare evaluation. Mode of access: Internet Krishna, Pravin. Maloney, William. IMF Working Papers; Working Paper ; No. 2013/024 Full text available on IMF http://elibrary.imf.org/view/journals/001/2013/024/001.2013.issue-024-en.xml IMF e-Library