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Consumption and Income Poverty over the Business Cycle

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  • Bruce D. Meyer
  • James X. Sullivan

Abstract

We examine the relationship between the business cycle and poverty for the period from 1960 to 2008 using income data from the Current Population Survey and consumption data from the Consumer Expenditure Survey. This new evidence on the relationship between macroeconomic conditions and poverty is of particular interest given recent changes in anti-poverty policies that have placed greater emphasis on participation in the labor market and in-kind transfers. We look beyond official poverty, examining alternative income poverty and consumption poverty, which have conceptual and empirical advantages as measures of the well-being of the poor. We find that both income and consumption poverty are sensitive to macroeconomic conditions. A one percentage point increase in unemployment is associated with an increase in the after-tax income poverty rate of 0.9 to 1.1 percentage points in the long-run, and an increase in the consumption poverty rate of 0.3 to 1.2 percentage points in the long-run. The evidence on whether income is more responsive to the business cycle than consumption is mixed. Income poverty does appear to be more responsive using national level variation, but consumption poverty is often more responsive to unemployment when using regional variation. Low percentiles of both income and consumption are sensitive to macroeconomic conditions, and in most cases low percentiles of income appear to be more responsive than low percentiles of consumption.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16751.

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Date of creation: Jan 2011
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Publication status: published as “Consumption and Income Poverty Over the Business Cycle,” (with James X. Sullivan), Research in Labor Economics 32, 2011, 51-81. Outstanding Author Contribution Award Winner at the Literati Network Awards for Excellence 2012.
Handle: RePEc:nbr:nberwo:16751

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  1. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2009. "The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences," Working Papers 0903, Harris School of Public Policy Studies, University of Chicago.
  2. Bruce D. Meyer & James X. Sullivan, 2009. "Five Decades of Consumption and Income Poverty," NBER Working Papers 14827, National Bureau of Economic Research, Inc.
  3. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
  4. Bruce D. Meyer & James X. Sullivan, 2007. "Further Results on Measuring the Well-Being of the Poor Using Income and Consumption," Working Papers 0719, Harris School of Public Policy Studies, University of Chicago.
  5. Hilary Hoynes & Marianne Page & Ann Stevens, 2005. "Poverty in America: Trends and Explanations," NBER Working Papers 11681, National Bureau of Economic Research, Inc.
  6. Jon Bakija, 2006. "Documentation for a Comprehensive Historical U.S. Federal and State Income Tax Calculator Program," Department of Economics Working Papers 2006-02, Department of Economics, Williams College, revised Aug 2009.
  7. Rebecca M. Blank & David Card, 1993. "Poverty, Income Distribution, and Growth: Are They Still Connected," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(2), pages 285-340.
  8. Rebecca M. Blank & Alan S. Blinder, 1985. "Macroeconomics, Income Distribution, and Poverty," NBER Working Papers 1567, National Bureau of Economic Research, Inc.
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Cited by:
  1. Luis Ayala & Olga Cantó & Juan G. Rodríguez, 2011. "Poverty and the business cycle: The role of the intra-household distribution of unemployment," Working Papers 222, ECINEQ, Society for the Study of Economic Inequality.
  2. Gustavo A. Marrero & Juan G. Rodriguez, 2012. "Macroeconomic determinants of inequality of opportunity and effort in the US: 1970-2009," Working Papers 249, ECINEQ, Society for the Study of Economic Inequality.
  3. Bargain, Olivier & Dolls, Mathias & Immervoll, Herwig & Neumann, Dirk & Peichl, Andreas & Pestel, Nico & Siegloch, Sebastian, 2011. "Tax Policy and Income Inequality in the U.S., 1978-2009: A Decomposition Approach," IZA Discussion Papers 5910, Institute for the Study of Labor (IZA).
  4. Marianne Bitler & Hilary Hoynes & Elira Kuka, 2014. "Do In-Work Tax Credits Serve as a Safety Net?," NBER Working Papers 19785, National Bureau of Economic Research, Inc.

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