Consumption insurance pattern differences between China and the US: The role of self- and external insurance

In this letter, we measure permanent income shocks, transitory income shocks, and consumption changes at the household level to explore the role of self-insurance and external insurance in explaining the different consumption insurance patterns between Chinese households and US households. We find that household assets have larger effects on increasing the household's smoothing of permanent income shocks for Chinese households, while public transfers decrease US households' sensitivity to transitory income shocks. The role of private transfers is not statistically significant for either US or Chinese households.

Automated summary

This study examines the role of self-insurance and external insurance in explaining consumption insurance patterns between Chinese and US households by measuring permanent income shocks, transitory income shocks, and consumption changes at the household level. The findings show that household assets play a significant role in smoothing permanent income shocks for Chinese households, while public transfers decrease US households' sensitivity to transitory income shocks. Private transfers, however, do not have statistically significant effects for either group.