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Changes in the Income Distribution and Aggregate Consumption

Luigi Pistaferri () and Itay Saporta-Eksten
Authors registered in the RePEc Author Service: Itay Saporta Eksten ()

No 11, Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: Since the late 1970s there has been a remarkable and persistent increase in wage inequality in the US and other industrialized countries. Researchers have also documented an increase in the dispersion of individual earnings, household (pooled) earnings, household disposable income, and (less consistently) consumption. Some of the changes in inequality are exogenous and reflect transformations in labor markets and institutions,1 while others are endogenous and reflect individual and household behavioural responses to such changes in terms of labor supply, asset accumulation, and participation in government insurance programs. The first goal of this paper is to discuss what we know about the effect of shifts in the distribution of income on aggregate consumption. We focus in particular on changes in inequality, volatility, and expectations, and highlight the pervasive role of heterogeneity. Our second goal is to asses the role of changes in the income distribution in explaining the joint evolution of aggregate consumption and income over the Great Recession.

Keywords: Income distribution; Aggregate consumption (search for similar items in EconPapers)
JEL-codes: D31 D91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-ltv
Date: 2012-10
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