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

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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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17982.

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Date of creation: Apr 2012
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Publication status: published as Orazio Attanasio, Erik Hurst, Luigi Pistaferri. "The Evolution of Income, Consumption, and Leisure Inequality in the US, 1980-2010," in Christopher Carroll, Thomas Crossley, and John Sabelhaus, editors, "Improving the Measurement of Consumer Expenditures" University of Chicago Press (2014)
Handle: RePEc:nbr:nberwo:17982

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  1. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
  2. 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 33, Econometric Society.
  3. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
  4. Orazio Attanasio & Steven J. Davis, 1994. "Relative Wage Movements and the Distribution of Consumption," NBER Working Papers 4771, National Bureau of Economic Research, Inc.
  5. Martin Browning & Thomas Crossley, 2009. "Are Two Cheap, Noisy Measures Better Than One Expensive, Accurate One?," American Economic Review, American Economic Association, vol. 99(2), pages 99-103, May.
  6. 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.
  7. Richard Blundell & Luigi Pistaferri & Ian Preston, 2004. "Consumption inequality and partial insurance," IFS Working Papers W04/28, Institute for Fiscal Studies.
  8. Angus Deaton & Christina Paxson, 1993. "Intertemporal Choice and Inequality," NBER Working Papers 4328, National Bureau of Economic Research, Inc.
  9. 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.
  10. Mario Padula, 1999. "Euler Equations and Durable Goods," CSEF Working Papers 30, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  11. Bruce D. Meyer & James X. Sullivan, 2009. "Five Decades of Consumption and Income Poverty," Working Papers 0907, Harris School of Public Policy Studies, University of Chicago.
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Blog mentions

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  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. Osberg, Lars, 2013. "Instability implications of increasing inequality: Evidence from North America," Economic Modelling, Elsevier, vol. 35(C), pages 918-930.
  2. Campos, Rodolfo G. & Reggio, Iliana, 2014. "Measurement error in imputation procedures," Economics Letters, Elsevier, vol. 122(2), pages 197-202.

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