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Does income inequality affect aggregate consumption? Revisiting the evidence

Author

Listed:
  • Jesus Crespo Cuaresma

    (Department of Economics, Vienna University of Economics and Business)

  • Jozef Kubala

    (University of Economics in Bratislava)

  • Kristina Petrikova

    (University of Economics in Bratislava)

Abstract
The standard Keynesian view predicts that equalization of the income distribution leads to an increase in aggregate consumption. We revisit the analysis carried out by the seminal empirical contributions which test such a hypothesis using modern econometric methods and the most comprehensive dataset existing on income distribution measures. Our results indicate that there is no substantive empirical evidence of an effect of income inequality on aggregate consumption.

Suggested Citation

  • Jesus Crespo Cuaresma & Jozef Kubala & Kristina Petrikova, 2016. "Does income inequality affect aggregate consumption? Revisiting the evidence," Department of Economics Working Papers wuwp210, Vienna University of Economics and Business, Department of Economics.
    • Handle: RePEc:wiw:wiwwuw:wuwp210
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    References listed on IDEAS

    as
    1. Francisco Alvarez-Cuadrado & Ngo Van Long, 2012. "Envy and Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 949-973, September.
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    3. Jean-Paul Fitoussi & Francesco Saraceno, 2010. "Inequality and macroeconomic performance," Working Papers hal-01069429, HAL.
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    5. Michael Kumhof & Romain Rancière & Pablo Winant, 2015. "Inequality, Leverage, and Crises," American Economic Review, American Economic Association, vol. 105(3), pages 1217-1245, March.
    6. Christopher Brown, 2004. "Does income distribution matter for effective demand? Evidence from the United States," Review of Political Economy, Taylor & Francis Journals, vol. 16(3), pages 291-307.
    7. Della Valle, Philip A & Oguchi, Noriyoshi, 1976. "Distribution, the Aggregate Consumption Function, and the Level of Economic Development: Some Cross-Country Results," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1325-1334, December.
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    9. Bordo, Michael D. & Meissner, Christopher M., 2012. "Does inequality lead to a financial crisis?," Journal of International Money and Finance, Elsevier, vol. 31(8), pages 2147-2161.
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    Cited by:

    1. Rude, Johanna, 2024. "Income Inequality and Aggregate Demand," MPRA Paper 120875, University Library of Munich, Germany.
    2. Kohlscheen, Emanuel & Lombardi, Marco & Zakrajšek, Egon, 2021. "Income Inequality and the depth of economic downturns," Economics Letters, Elsevier, vol. 205(C).
    3. T. Y. Ivakhnenko & A. V. Polbin, 2022. "Income Inequality and Propensity to Consume in Russia’s Regions," Regional Research of Russia, Springer, vol. 12(3), pages 378-385, September.
    4. Schulz, Jan & Mayerhoffer, Daniel M., 2021. "A network approach to consumption," BERG Working Paper Series 173, Bamberg University, Bamberg Economic Research Group.

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    More about this item

    Keywords

    Inequality; aggregate consumption; average propensity to consume;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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