Consumption Inequality in the Digital Age

36 Pages Posted: 25 Feb 2022

See all articles by Kai Arvai

Kai Arvai

Banque de France

Katja Mann

Copenhagen Business School

Date Written: December 23, 2021

Abstract

This paper studies the effect of digitalization on consumption inequality. We assemble a novel dataset of digital technology in the consumption basket of US households and establish a new stylized fact: High-income households have a higher consumption share of digital products than low-income households. Building on this finding, we present a structural model in which digitalization affects consumption inequality in two ways: By a polarization of incomes and by a decline in the relative price of digital goods. Both channels work in favor of high-income households. Calibrating the model to the US economy between 1960 and 2017, we demonstrate that the price channel has sizeable welfare effects and explains 22.5% of the increase in consumption inequality.

Keywords: Digitalization, inequality, consumption, income

JEL Classification: E21, E22, J31, O33, O41

Suggested Citation

Arvai, Kai and Mann, Katja, Consumption Inequality in the Digital Age (December 23, 2021). Available at SSRN: https://ssrn.com/abstract=3992247 or http://dx.doi.org/10.2139/ssrn.3992247

Kai Arvai

Banque de France ( email )

Paris
France

Katja Mann (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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