Abstract

We exploit a novel and unique opportunity to document the transmission of income risks to consumption in a growing economy. Our laboratory is China, an economy that has witnessed enormous and sustained growth and for which we build a long panel of household-level consumption and income. We find that consumption insurance deteriorates along the growth process with a transmission of permanent income shocks to consumption that at least triples from 1989 to 2009. Although preliminary, our calculations suggest that the loss of consumption insurance has implications for the welfare assessment of economic growth.