Arbeitspapier

Inequality over the business cycle: The role of distributive shocks

This paper examines the dynamics of wealth and income inequality along the business cycle and assesses how they are related to fluctuations in the functional income distribution. In a panel estimation for OECD countries between 1970 and 2016 we find that on average income inequality - measured by the Gini coefficient - is countercyclical and also shows a significant association with the capital share. Up on a closer look, we find that a remarkable share of one third of all countries display a rather pro- or acyclical relationship. In order to understand the underlying cyclical dynamics of inequality we incorporate distributive shocks, modeled as exogenous changes in the capital share, into a real business cycle model, where agents are ex-ante heterogeneous with respect to wealth and ability. We show how to derive standard inequality measures within this framework, which allow us to analyze how productivity and distributive shocks affect both, the macroeconomic variables and the personal income and wealth distribution over the business cycle. We find that whether wealth and income inequality in the model behaves countercyclical or not depends on two aspects. The intertemporal elasticity of substitution and the persistence of the shocks. We use Bayesian techniques in order to match GDP, capital share and consumption to quarterly U.S. data. The resulting parameter estimates point towards a non-monotonic relationship between productivity fluctuations and inequality. On impact, inequality increases in response to TFP shocks but declines in later periods. This pattern is consistent with the empirically observed relationship in the USA. Furthermore, we find that TFP shocks explain about 17 percent of the cyclical fluctuations in inequality in the USA.

Sprache
Englisch

Erschienen in
Series: DIW Discussion Papers ; No. 1852

Klassifikation
Wirtschaft
Personal Income, Wealth, and Their Distributions
Aggregate Factor Income Distribution
Business Fluctuations; Cycles
Thema
Business Cycle
Income and Wealth Inequality
Distributive Shocks

Ereignis
Geistige Schöpfung
(wer)
Clemens, Marius
Eydam, Ulrich
Heinemann, Maik
Ereignis
Veröffentlichung
(wer)
Deutsches Institut für Wirtschaftsforschung (DIW)
(wo)
Berlin
(wann)
2020

Handle
Letzte Aktualisierung
10.03.2025, 11:45 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Clemens, Marius
  • Eydam, Ulrich
  • Heinemann, Maik
  • Deutsches Institut für Wirtschaftsforschung (DIW)

Entstanden

  • 2020

Ähnliche Objekte (12)