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. JEL Klassifikation: E21, D91, D63, D31, G22

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Metadaten
Author:Dirk KruegerORCiDGND, Fabrizio Perri
URN:urn:nbn:de:hebis:30-10912
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2005,15
Series (Serial Number):CFS working paper series (2005, 15)
Document Type:Working Paper
Language:English
Year of Completion:2005
Year of first Publication:2005
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:Consumption Inequality; Limited Enforcement; Risk Sharing
GND Keyword:Einkommensunterschied; Verbrauch
Issue:May 2005
HeBIS-PPN:197172784
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht