Income Inequality and the Depth of Economic Downturns
Economics Letters (forthcoming)
16 Pages Posted: 26 May 2021
Date Written: May 1, 2021
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
JEL Classification: D31, E20, E32
Suggested Citation: Suggested Citation