Publication

The Korean Economic Forum

Age-Period-Cohort Effects in Income and Consumption Inequality

**Jong In Yoon (Baekseok University)**Year

**2024**Vol.

**17**No.

**2**

Abstract

This study used the APC model to estimate the age effect, period effect, and
cohort effect shown in the Gini coefficients of before-tax income, after-tax
income, and consumption. The main results are as follows. First, inequality in
before-tax income has steadily increased since the 1990s, but inequality in
after-tax income has increased only moderately, and inequality in consumption
has not worsened until recently. Second, the difference between before-tax
income and after-tax income inequality indicates the effects of income
redistribution, which contributed to reducing inequality in after-tax income by
greatly weakening the age effects. Third, the reason why inequality in
consumption was so stable is because the age effects were very weak and the
cohort effects offset it. The cohort effects observed in consumption inequality
means that the consumption inequality of subsequent generations was smaller
than that of the preceding generations. In a sense, Korea is becoming more
equal when it comes to consumption. Fourth, another reason why inequality in
consumptions was very stable was the two-earners’ income effect. The number
of dual-income households has been steadily increasing, and their consumptions
did not become significantly unequal even as they became older. Furthermore,
they were less affected by recession, and not significantly more unequal than for
the predecessors. In other words, two-earners’ households have been effectively
provided insurance against income risks. In Korean society where has changed
rapidly due to high economic growth in a short period of time, age effects,
period effects, and cohort effects account for a large part of trends in income
and consumption inequality.