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Rising income inequality and political polarization have led some to hypothesize that the two are causally linked. Properly interpreting such correlations is complicated by the multiple factors that drive each of these phenomena, potential feedbacks between inequality and polarization, measurement issues, and statistical challenges for modeling non-stationary variables. We find that a more precise measure of inequality (the inverted Pareto-Lorenz coefficient) is statistically related to polarization while a less precise one (top 1% income share) is not, and that there are bi-directional feedbacks between polarization and inequality. Findings support a nuanced view of the links between polarization and inequality.JEL Codes: D72, D63, D31

The increasing polarization of congressional voting has been linked to legislators' inability to reach consensus on many pressing economic issues. We examine two potential factors driving polarization: greater income inequality and the increasingly fragmented state of American media. Using cointegration techniques, we find evidence indicating that media fragmentation has played a more important role than inequality. Periods of rising media fragmentation are followed by increased polarization. If recent patterns of media structure and income inequality persist, a polarized policymaking environment will likely continue to impede efforts to address major challenges, such as the long‐run fiscal imbalances facing the United States. (JEL D72, D31)

Rising income inequality and political polarization have led some to hypothesize that the two are causally linked. Properly interpreting such correlations is complicated by the multiple factors that drive each of these phenomena, potential feedbacks between inequality and polarization, measurement issues, and statistical challenges for modeling non-stationary variables. We find that a more precise measure of inequality (the inverted Pareto-Lorenz coefficient) is statistically related to polarization while a less precise one (top 1% income share) is not, and that there are bi-directional feedbacks between polarization and inequality. Findings support a nuanced view of the links between polarization and inequality.JEL Codes: D72, D63, D31

No abstract