Has Consumption Inequality Mirrored Income Inequality?

The authors revisit to what extent the increase in income inequality over the last 30 years has been mirrored by consumption inequality. They do so by constructing two alternative measures of consumption expenditure, using data from the Consumer Expenditure Survey (CE). They first use reports of active savings and after tax income to construct the measure of consumption implied by the budget constraint. They find that the consumption inequality implied by savings behavior largely tracks income inequality between 1980 and 2007. Second, they use a demand system to correct for systematic measurement error in the CE's expenditure data. Specifically, they consider trends in the relative expenditure of high income and low income households for different goods with different income (total expenditure) elasticity's.

Provided by: National Bureau of Economic Research Topic: CXO Date Added: Feb 2011 Format: PDF

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