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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.

Suggested Citation

  • Bruce D. Meyer & James X. Sullivan, 2011. "Consumption and Income Poverty over the Business Cycle," NBER Working Papers 16751, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16751
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    References listed on IDEAS

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    1. Rebecca M. Blank & Alan S. Blinder, 1985. "Macroeconomics, Income Distribution, and Poverty," NBER Working Papers 1567, National Bureau of Economic Research, Inc.
    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. Hilary W. Hoynes & Marianne E. Page & Ann Huff Stevens, 2006. "Poverty in America: Trends and Explanations," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 47-68, Winter.
    4. Bruce D. Meyer & James X. Sullivan, 2007. "Further Results on Measuring the Well-Being of the Poor Using Income and Consumption," NBER Working Papers 13413, National Bureau of Economic Research, Inc.
    5. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2009. "The Under-Reporting of Transfers in Household Surveys: Its Nature and Consequences," NBER Working Papers 15181, National Bureau of Economic Research, Inc.
    6. 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.
    7. 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.
    8. 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.
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    Citations

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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. Marianne Bitler & Hilary Hoynes & Elira Kuka, 2017. "Child Poverty, the Great Recession, and the Social Safety Net in the United States," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 36(2), pages 358-389, March.
    4. 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).
    5. Carlos Gradín & Olga Cantó & Coral Río, 2017. "Measuring employment deprivation in the EU using a household-level index," Review of Economics of the Household, Springer, vol. 15(2), pages 639-667, June.
    6. Marianne Bitler & Hilary Hoynes & Elira Kuka, 2017. "Do In-Work Tax Credits Serve as a Safety Net?," Journal of Human Resources, University of Wisconsin Press, vol. 52(2), pages 319-350.
    7. repec:eee:enepol:v:113:y:2018:i:c:p:663-672 is not listed on IDEAS
    8. Philip Müller, 2016. "Poverty in Europe: Sociodemographics, Portfolios and Consumption of Wealth Poor Households," LWS Working papers 22, LIS Cross-National Data Center in Luxembourg.
    9. Amendola, Nicola & Vecchi, Giovanni, 2014. "Durable goods and poverty measurement," Policy Research Working Paper Series 7105, The World Bank.

    More about this item

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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