Consumption and Income Inequality in the U.S. Since the 1960s

72 Pages Posted: 17 Sep 2017

See all articles by Bruce D. Meyer

Bruce D. Meyer

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies; National Bureau of Economic Research (NBER)

James X. Sullivan

University of Notre Dame - Department of Economics and Econometrics

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2017

Abstract

Official income inequality statistics indicate a sharp rise in inequality over the past five decades. These statistics do not accurately reflect inequality because income is poorly measured, particularly in the tails of the distribution, and current income differs from permanent income, failing to capture the consumption paid for through borrowing and dissaving and the consumption of durables such as houses and cars. We examine income inequality between 1963 and 2014 using the Current Population Survey and consumption inequality between 1960 and 2014 using the Consumer Expenditure Survey. We construct improved measures of consumption, focusing on its well-measured components that are reported at a high and stable rate relative to national accounts. While overall income inequality (as measured by the 90/10 ratio) rose over the past five decades, the rise in overall consumption inequality was small. The patterns for the two measures differ by decade, and they moved in opposite directions after 2006. Income inequality rose in both the top and bottom halves of the distribution, but increases in consumption inequality are only evident in the top half. The differences are also concentrated in single parent families and single individuals. Although changing demographics can account for some of the changes in consumption inequality, they account for little of the changes in income inequality. Consumption smoothing cannot explain the differences between income and consumption at the very bottom, but the declining quality of income data can. Asset price changes likely account for some of the differences between the measures in recent years for the top half of the distribution.

Suggested Citation

Meyer, Bruce D. and Sullivan, James X., Consumption and Income Inequality in the U.S. Since the 1960s (September 1, 2017). Becker Friedman Institute for Research in Economics Working Paper No. 12. Available at SSRN: https://ssrn.com/abstract=3037000 or http://dx.doi.org/10.2139/ssrn.3037000

Bruce D. Meyer (Contact Author)

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( email )

1155 East 60th Street
Chicago, IL 60637
United States
(773) 702-2712 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James X. Sullivan

University of Notre Dame - Department of Economics and Econometrics ( email )

Notre Dame, IN 46556
United States

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