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Macroeconomic determinants of inequality of opportunity and effort in the US: 1970-2009

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  • Gustavo A. Marrero

    ()
    (Universidad de La Laguna)

  • Juan G. Rodriguez

    ()
    (Universidad Complutense de Madrid)

Abstract

Conventional wisdom predicts that changes in macroeconomic conditions significantly affect income inequality. In this paper we hypothesize that the way in which macroeconomic conditions affect inequality depends on how these conditions influence the constituents of total inequality: inequality of opportunity (IO) and inequality of effort (IE). Using the PSID database for the U.S. (1970-2009), we first decompose total inequality into these components. Then, we specify a dynamic model that relates each inequality component to a set of macroeconomic factors. Apart from real GDP and inflation rates, the most widely used factors in the literature, we also consider outstanding consumer credits and public welfare and health care expenditures. We find that real GDP and outstanding credits have a negative and significant effect upon IO and IE, while inflation has a positive and significant effect only on IE, and welfare expenditures have a negative and significant effect only on IO.

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Bibliographic Info

Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 249.

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Length: 30 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:inq:inqwps:ecineq2012-249

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Keywords: income inequality; inequality of opportunity; inequality of effort; growth cycle; outstanding consumer credit.;

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