The Impact of Oil Price Shocks on Income Inequality: Evidence from State-Level Data of the United States

Xin Sheng () and Rangan Gupta
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Xin Sheng: Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, United Kingdom

No 202128, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper examines the impacts of oil price shocks on income inequality in the United States (US). Using the local projection method, we investigate linear and nonlinear impulse responses of household income inequality to oil price shocks based on a newly constructed large panel dataset including all 50 US states plus the District of Columbia. We disaggregate oil price shocks according to their origin into oil supply, global economic activity, oil consumption demand and oil inventory demand shocks, and test the dynamic response of income inequality to oil price structural shocks, contingent on the status of oil dependence in individual US states. Our results, based on the linear projection model, show that oil supply shocks lead to higher income inequality in the short term, but lower-income inequality in the medium- and long-terms. Moreover, economic activity shocks and oil inventory demand shocks mainly exert negative impacts on income inequality over time, while both positive and negative effects of oil consumption demand shocks on income inequality are observed. Our nonlinear impulse response results reveal some evidence of heterogeneous responses of income inequality to oil price shocks between high- and low-oil dependence US states.

Keywords: Inequality; Oil price Shocks; State-level US data; Linear and nonlinear projection models (search for similar items in EconPapers)
JEL-codes: C22 D63 Q02 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2021-04
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202128

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