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Income Inequality and Propensity to Consume in Russia’s Regions

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  • T. Y. Ivakhnenko

    (Russian Presidential Academy of National Economy and Public Administration)

  • A. V. Polbin

    (Russian Presidential Academy of National Economy and Public Administration
    Gaidar Institute for Economic Policy)

Abstract

This paper empirically examines the impact of income inequality on the average propensity to consume using data for 79 Russia’s regions for the period of 2002–2020. Using several alternative specifications for the APC and econometric methods, we find that the average propensity to consume is higher in regions with higher income inequality, regardless of the estimation method. This result is consistent with some previous studies, for example, for US and cross-country data. We add GRP per capita, inflation and the share of population over the working age in the estimated model to control the impact of other factors on the average propensity to consume in the region. The positive impact of income inequality on the average propensity to consume obtained for Russia’s regions could be related, firstly, to a large share of consumption in the income of the rich, and secondly, to the mechanism of the relative income hypothesis. This study reveals another negative consequence of increasing income inequality in Russia, namely the growing average propensity to consume among regions.

Suggested Citation

  • T. Y. Ivakhnenko & A. V. Polbin, 2022. "Income Inequality and Propensity to Consume in Russia’s Regions," Regional Research of Russia, Springer, vol. 12(3), pages 378-385, September.
    • Handle: RePEc:spr:rrorus:v:12:y:2022:i:3:d:10.1134_s2079970522700204
    DOI: 10.1134/S2079970522700204
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