Arbeitspapier

Does income inequality lead to consumption inequality? Evidence and theory

Using data from the Consumer Expenditure Survey we first document that the recent increase in income inequality in the US has not been accompanied by a corresponding rise in consumption inequality. Much of this divergence is due to different trends in within-group inequality, which has increased significantly for income but little for consumption. We then develop a simple framework that allows us to analytically characterize how within-group income inequality affects consumption inequality in a world in which agents can trade a full set of contingent consumption claims, subject to endogenous constraints emanating from the limited enforcement of intertemporal contracts (as in Kehoe and Levine, 1993). Finally, we quantitatively evaluate, in the context of a calibrated general equilibrium production economy, whether this set-up, or alternatively a standard incomplete markets model (as in Ayiagari 1994), can account for the documented stylized consumption inequality facts from the US data.

Language
Englisch

Bibliographic citation
Series: CFS Working Paper ; No. 2005/15

Classification
Wirtschaft
Macroeconomics: Consumption; Saving; Wealth
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Equity, Justice, Inequality, and Other Normative Criteria and Measurement
Personal Income, Wealth, and Their Distributions
Insurance; Insurance Companies; Actuarial Studies
Subject
Limited Enforcement
Risk Sharing
Consumption Inequality
Einkommensverteilung
Gesamtwirtschaftlicher Konsum
Theorie
USA

Event
Geistige Schöpfung
(who)
Krueger, Dirk
Perri, Fabrizio
Event
Veröffentlichung
(who)
Goethe University Frankfurt, Center for Financial Studies (CFS)
(where)
Frankfurt a. M.
(when)
2005

Handle
URN
urn:nbn:de:hebis:30-10912
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Krueger, Dirk
  • Perri, Fabrizio
  • Goethe University Frankfurt, Center for Financial Studies (CFS)

Time of origin

  • 2005

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