Consumption Inequality in the Digital Age
56 Pages Posted: 25 Feb 2022 Last revised: 26 Apr 2024
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Consumption Inequality in the Digital Age
Date Written: April 26, 2024
Abstract
This paper studies how digitalization affects consumption inequality. While previous literature
has documented that technological change leads to U-shaped income polarization, we
show that consumption and welfare responses resemble a J-shape. This is due to changes in
consumer prices, which are more favorable for high earners. By assembling a novel dataset
of digital technology in consumption, we establish that high-income households consume a
larger share of digitally produced products, and that these products witness lower inflation. In
a structural model that jointly considers income and price changes, we quantify the impact of
digitalization on consumption inequality between 1960-2017.
Keywords: Digitalization, inequality, consumption, income, automation
JEL Classification: E21, E22, J31, O33, O41
Suggested Citation: Suggested Citation