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Has Consumption Inequality Mirrored Income Inequality?

Author

Listed:
  • Mark Bils

    (University of Rochester)

  • Mark Aguiar

    (University of Rochester)

Abstract

last 30 years has been mirrored by consumption inequality. We do so by constructing two alternative measures of consumption expenditure, using data from the Consumer Expenditure Survey (CE). We first use reports of active savings and after tax income to construct the measure of consumption implied by the budget constraint. We find that the consumption inequality implied by savings behavior tracks income inequality closely between 1980 and 2007. Second, we use a demand system to correct for systematic measurement error in the CE's expenditure data. Specifically, we consider trends in the relative expenditure of high income and low income households for different goods with different income elasticities. Our estimation exploits the difference in the growth rate of luxury consumption inequality versus necessity consumption inequality. This ``double-differencing,'' which we implement in a a regression framework, corrects for mis-measurement that can systematically vary over time by good and income group. This second exercise also indicates that consumption inequality has closely tracked income inequality over the period 1980-2007. Both of our measures show a significantly greater increase in consumption inequality than what is obtained from the CE's total household expenditure data directly.

Suggested Citation

  • Mark Bils & Mark Aguiar, 2010. "Has Consumption Inequality Mirrored Income Inequality?," 2010 Meeting Papers 1334, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:1334
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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