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

  • Orazio Attanasio
  • Erik Hurst
  • Luigi Pistaferri

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
Date of revision:
Publication status: published as The Evolution of Income, Consumption, and Leisure Inequality in the United States, 1980–2010 , Orazio Attanasio, Erik Hurst, Luigi Pistaferri. in Improving the Measurement of Consumer Expenditures , Carroll, Crossley, and Sabelhaus. 2015
Handle: RePEc:nbr:nberwo:17982
Note: EFG
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  1. Bruce Meyer & James X. Sullivan, 2010. "Five Decades of Consumption and Income Proverty," Working Papers 2010-003, Becker Friedman Institute for Research In Economics.
  2. Angus Deaton & Christina Paxson, 1993. "Intertemporal Choice and Inequality," NBER Working Papers 4328, National Bureau of Economic Research, Inc.
  3. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2009. "Unequal we stand: an empirical analysis of economic inequality in the United States, 1967-2006," Staff Report 436, Federal Reserve Bank of Minneapolis.
  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. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
  6. Richard Blundell & Luigi Pistaferri & Ian Preston, 2004. "Imputing consumption in the PSID using food demand estimates from the CEX," IFS Working Papers W04/27, Institute for Fiscal Studies.
  7. 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.
  8. 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.
  9. Orazio Attanasio & Nicola Pavoni, 2008. "Risk Sharing in Private Information Models with Asset Accumulation: Explaining the Excess Smoothness of Consumption," Carlo Alberto Notebooks 103, Collegio Carlo Alberto.
  10. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers W97/15, Institute for Fiscal Studies.
  11. Mark A. Aguiar & Mark Bils, 2011. "Has Consumption Inequality Mirrored Income Inequality?," NBER Working Papers 16807, National Bureau of Economic Research, Inc.
  12. David M. Cutler & Lawrence F. Katz, 1992. "Rising Inequality? Changes in the Distribution of Income and Consumption in the 1980s," NBER Working Papers 3964, National Bureau of Economic Research, Inc.
  13. 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.
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