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The Evolution of Income, Consumption, and Leisure Inequality in the US, 1980-2010

In: Improving the Measurement of Consumer Expenditures

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  • Orazio Attanasio
  • Erik Hurst
  • Luigi Pistaferri

Abstract

Recent research has documented that income inequality in the United States has increased dramatically over the prior three decades. There has been less of a consensus, however, on whether the increase in income inequality was matched by an equally large increase in consumption inequality. Most researchers have studied this question using data from the Consumer Expenditure Survey (CE) and some studies have suggested that the increase in consumption inequality has been modest. Unfortunately ,there is now mounting evidence that the CE is plagued by serious non-classical measurement error, which hinders the extent to which definitive conclusions can be made about the extent to which consumption inequality has evolved over the last three decades. In this paper, we use a variety of different techniques to overcome the measurement error problems with the CE. First, we use data from the diary component of the CE, focusing on categories where measurement error has been found to be less of an issue. Second, we explore inequality measures within the CE using the value of vehicles owned, a consumption component that is considered to be measured well. Third, we try to account directly for the non-classical measurement error of the CE by comparing the spending on luxuries (entertainment) relative to necessities (food). This is similar to the recent approach taken by Browning and Crossley (2009) and Aguiar and Bils (2011). Finally, we use expenditure data from the Panel Study of Income Dynamics to explore the dynamics of alternative measures of consumption inequality. All of our different methods yield similar results. We find that consumption inequality within the U.S. between 1980 and 2010 has increased by nearly the same amount as income inequality.

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This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12675.

Handle: RePEc:nbr:nberch:12675

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References

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  1. Bruce Meyer & James X. Sullivan, 2010. "Five Decades of Consumption and Income Proverty," Working Papers, Becker Friedman Institute for Research In Economics 2010-003, Becker Friedman Institute for Research In Economics.
  2. Orazio Attanasio & Nicola Pavoni, 2007. "Risk Sharing in Private Information Models with Asset Accumulation: Explaining the Excess Smoothness of Consumption," NBER Working Papers 12994, National Bureau of Economic Research, Inc.
  3. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006," NBER Working Papers 15483, National Bureau of Economic Research, Inc.
  4. Mark Bils & Mark Aguiar, 2010. "Has Consumption Inequality Mirrored Income Inequality?," 2010 Meeting Papers, Society for Economic Dynamics 1334, Society for Economic Dynamics.
  5. Orazio Attanasio & Steven J. Davis, 1994. "Relative Wage Movements and the Distribution of Consumption," NBER Working Papers 4771, National Bureau of Economic Research, Inc.
  6. David M. Cutler & Lawrence F. Katz, 1992. "Rising Inequality? Changes in the Distribution of Income and Consumption in the 1980s," NBER Working Papers 3964, National Bureau of Economic Research, Inc.
  7. Thesia I. Garner & Atsushi Maki, 2004. "The gap between macro and micro economic statistics: Estimation of the misreporting model using micro-data sets derived from the Consumer Expenditure Survey," Econometric Society 2004 Australasian Meetings, Econometric Society 33, Econometric Society.
  8. Martin Browning & Thomas Crossley, 2009. "Are two cheap, noisy measures better than one expensive, accurate one?," IFS Working Papers, Institute for Fiscal Studies W09/01, Institute for Fiscal Studies.
  9. Dirk Krueger & Fabrizio Perri, 2006. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory -super-1," Review of Economic Studies, Oxford University Press, vol. 73(1), pages 163-193.
  10. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(3), pages 437-67, June.
  11. Richard Blundell & Luigi Pistaferri & Ian Preston, 2004. "Imputing consumption in the PSID using food demand estimates from the CEX," IFS Working Papers, Institute for Fiscal Studies W04/27, Institute for Fiscal Studies.
  12. Richard Blundell & Luigi Pistaferri & Ian Preston, 2004. "Consumption inequality and partial insurance," IFS Working Papers, Institute for Fiscal Studies W04/28, Institute for Fiscal Studies.
  13. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers, Institute for Fiscal Studies W97/15, Institute for Fiscal Studies.
  14. Mario Padula, 1999. "Euler Equations and Durable Goods," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 30, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The Evolution of Income, Consumption, and Leisure Inequality in The US, 1980-2010
    by maximorossi in NEP-LTV blog on 2012-04-19 19:39:32
  2. The Evolution of Income, Consumption, and Leisure Inequality in The US, 1980-2010
    by maximorossi in NEP-LTV blog on 2012-04-19 19:39:32
  3. Reagan and the role of the past in shaping the future
    by Jonas Feit in Conscience Warrior on 2013-12-14 18:10:00
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Cited by:
  1. John Silvia & Lorenz Kueng & Olivier Coibion & Yuriy Gorodnichenko, 2012. "Innocent Bystanders? Monetary Policy and Inequality in the U.S," IMF Working Papers 12/199, International Monetary Fund.
  2. Rodolfo G. Campos & Iliana Reggio, 2013. "Measurement error in imputation procedures," Banco de Espa�a Working Papers 1322, Banco de Espa�a.
  3. Osberg, Lars, 2013. "Instability implications of increasing inequality: Evidence from North America," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 918-930.
  4. Amy Beech & Rosetta Dollman & Richard Finlay & Gianni La Cava, 2014. "The Distribution of Household Spending in Australia," RBA Bulletin, Reserve Bank of Australia, Reserve Bank of Australia, pages 13-22, March.
  5. Federico Ravenna & Nicolas Vincent, 2014. "Inequality and Debt in a Model with Heterogeneous Agents," Cahiers de recherche, CIRPEE 1408, CIRPEE.

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