Do the Poor Insure their Consumption More? Empirical Evidence from Uganda

Using nationally representative household panel data, I study differences in consumption insurance across the quintiles of the time-averaged consumption, income, and wealth distributions in Uganda. In rural areas, where most households reside, poorer households present higher levels of consumption insurance than richer ones. Across multiple econometric specifications, estimated coefficients capturing the transmission of idiosyncratic income shocks to consumption are notably lower for households in the bottom quintiles of the consumption and wealth distributions than for those in the top quintiles. In contrast, the pattern reverses in urban areas: households in the top quintiles of income and wealth exhibit higher consumption insurance. These findings suggest that subsistence concerns and reliance on informal mechanisms support stronger consumption smoothing among the poorest rural households, whereas in urban areas, greater access to formal financial markets enables richer households to insure their consumption more. JEL Classification O11, O12, E21, D12.