Has Consumption Inequality Mirrored Income Inequality?

Abstract

We revisit the issue of whether the increase in income inequality over the last 30 years has translated into a quantitatively similar increase in consumption inequality. Contrary to several influential studies discussed below, we find that consumption inequality has tracked income inequality. Like most of the previous literature that argues the opposite, we base our conclusions on the Consumer Expenditure Survey's (CE) interview survey. But rather than measure consumption inequality directly by summing household expenditures, we base our measure of consumption inequality on how richer versus poorer households allocate spending across goods. In particular, we estimate relative consumption growth across income groups by observing how households in these groups have shifted their expenditures toward luxuries versus necessities over time. We show our approach is robust to systematic trends in measurement error that may bias measures based on summing household spending. We find a substantial increase in consumption inequality, similar in magnitude to the increase in income inequality.An influential paper by Krueger and Perri (2006), building on related work by Slesnick (2001), uses the CE to argue that consumption inequality has not kept pace with income inequality.1 In an exercise comparable to Krueger and Perri's, we show that both relative before and after-tax income inequality increased by about 33 percent (0.33 log points) between 1980 and 2010, where our conservative measure of 1 For other contributions to this literature, see Blundell and Preston (1998); Blundell, Pistaferri, and Preston

Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs

“…First, direct responses have been used extensively in earlier attempts to quantify the effects of the 2001 and 2008 tax rebates, including Johnson, Parker, and Souleles (2006) and Parker et al (2013), and we want to ensure that any possible difference in our results is not driven by the use of a different version of the CEX data. Second, while Aguiar and Bils (2011) show that the trends in consumption inequality using an imputation procedure can be different from the trends based on direct responses, Attanasio, Hurst, and Pistaferri (2012) advocate that categories of large durable goods such as vehicle purchases are less prone to nonclassical measurement errors. Interestingly, our analysis, which covers periods of roughly five quarters, reveals that "new vehicle purchases" is not only the category associated with the largest extent of heterogeneity but also a main driver of the average treatment effect estimated using total household expenditure.…”

Is Economic Inequality Really a Problem? A Review of the Arguments

“…In contrast, after making adjustments to data on consumer expenditures to take account of the different types of goods consumed by households with different levels of income, Aguiar and Bils (2015) find that inequality measured by consumption expenditures actually tracks income inequality very closely. Attanasio et al (2012) also find that measurement errors in the U.S. Consumer Expenditure Survey may account for the apparent lower increases in consumption inequality as compared to income inequality and, after further analysis, conclude that consumption and income inequality have increased by about the same amounts in recent years.…”

Restricted Intervals in Preference Dynamics: Theory and Application in an Agent-Based System

“…Schematic of signal and noise in stochastic resonance. 2 feedback effects have been demonstrated in systems in physical and life sciences as well as selected social processes such as opinion formation [27], [53], [94]. A mechanism to represent enduring effects of randomness that we describe in stochastic resonance (SR: see [8], [35]) will be introduced.…”

“…Personal consumption expenditure (PCE) accounts for about two-third of GDP in developed countries. Decisions of agents on PCE also have key implications for aggregate level issues that include the changes in inequality and the savings rate (see [2], [47]). The consumption system that we will propose gives an explicit dynamic form to a preference variable and exhibits the "openness" to effects of environments we have described through feedback in its dynamics.…”