The regional transmission of uncertainty shocks on income inequality in the United States

Manfred Fischer, Florian Huber and Michael Pfarrhofer

No 2019/01, Working Papers in Regional Science from WU Vienna University of Economics and Business

Abstract: This paper explores the relationship between household income inequality and macroeconomic uncertainty in the United States. Using a novel large-scale macroeconometric model, we shed light on regional disparities of inequality responses to a national uncertainty shock. The results suggest that income inequality decreases in most states, with a pronounced degree of heterogeneity in terms of the dynamic responses. By contrast, some few states, mostly located in the Midwest, display increasing levels of income inequality over time. Forecast error variance and historical decompositions highlight the importance of uncertainty shocks in explaining income inequality in most regions considered. Finally, we explain differences in the responses of income inequality by means of a simple regression analysis. These regressions reveal that the income composition as well as labor market fundamentals determine the directional pattern of the dynamic responses.

Keywords: Income distribution; US states; macroeconomic volatility; global vector autoregressive model (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-mac and nep-ure
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Citations: View citations in EconPapers (8)

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Journal Article: The regional transmission of uncertainty shocks on income inequality in the United States (2021)
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