Consumer Confidence and Income Inequality

Abstract:     
Although the Atkinson Inequality Index is widely used, this paper is the first attempt to empirically estimate the parameter on which that index is based. Forty-five years US income distribution and consumer confidence surveys allow one to estimate this Atkinson parameter of inequality aversion. Consumer confidence appears to have become more sensitive to inequality since 1968. About this time, inequality became somewhat less correlated with unemployment, and more correlated with the US stock market. Because consumer confidence indexes are widely-used in spotting business cycle trends, any added ability to predict changes in confidence is of practical importance.

JEL Classifications: D6, D3

Working Paper Series