Does income inequality lead to consumption inequality? Evidence and theory

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

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

Classification and Topics

• 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

Contributors, Places and Time

• 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

Further information

• Handle: http://hdl.handle.net/10419/25457
• URN: urn:nbn:de:hebis:30-10912
• Last update: 10.03.2025, 11:43 AM CET