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Consumption Inequality in the Digital Age

Author

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  • Arvai Kai
  • Mann Katja

Abstract

This paper studies how digitalization affects consumption inequality. We assemble a novel dataset of digital technology used in the production process, link it to US consumption data and establish a new stylized fact: High-income households consume a higher share of digitally produced products than low-income households. Building on this finding, we present a structural model in which digitalization affects consumption inequality in two ways: By a polarization of incomes and by a decline in the relative price of digitally produced goods. Both channels work in favour of high-income households. Calibrating the model to the US economy between 1960 and 2017, we demonstrate that the price channel has sizeable welfare effects and contributes the increase in consumption inequality that is caused by the effect of digitalization by around 25%.

Suggested Citation

  • Arvai Kai & Mann Katja, 2022. "Consumption Inequality in the Digital Age," Working papers 890, Banque de France.
    • Handle: RePEc:bfr:banfra:890
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    More about this item

    Keywords

    Digitalization; Inequality; Consumption; Income;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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