Has Consumption Inequality Mirrored Income Inequality?
American Economic Review · 2015 · Volume 105 · Issue 9
Abstract
We revisit to what extent the increase in income inequality since 1980 was mirrored by consumption inequality. We do so by constructing an alternative measure of consumption expenditure using a demand system to correct for systematic measurement error in the Consumer Expenditure Survey. Our estimation exploits the relative expenditure of high- and low-income households on luxuries versus necessities. This double differencing corrects for measurement error that can vary over time by good and income. We find consumption inequality tracked income inequality much more closely than estimated by direct responses on expenditures. (JEL D31, D63, E21)
Keywords
Personal Income, Wealth, and Their Distributions, Equity, Justice, Inequality, and Other Normative Criteria and Measurement, Macroeconomics: Consumption, Saving
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