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Income inequality and the depth of economic downturns

Emanuel Kohlscheen, Marco Lombardi () and Egon Zakrajšek ()

No 943, BIS Working Papers from Bank for International Settlements

Abstract: Using an international panel data set, we analyze the implications of rising income inequality for aggregate consumption. We document that greater concentration of (after-tax) income in the top decile is associated with a significantly larger and more persistent contraction in consumption in the aftermath of economic downturns. These findings are consistent with lower propensities to consume among wealthier households and imply that disparities in income flows at turning points of the business cycle can significantly influence macroeconomic outcomes.

Keywords: consumption; income inequality; recessions; financial crises; cross-country evidence (search for similar items in EconPapers)
JEL-codes: D31 E20 E32 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2021-05
New Economics Papers: this item is included in nep-cwa and nep-mac
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Journal Article: Income Inequality and the depth of economic downturns (2021) Downloads
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