2024/01/18 by Fischer, Manfred M., Huber, Florian, Pfarrhofer, Michael
paper · doi:10.57938/0eb12841-363b-4750-9646-79528acdd645
This paper explores the relationship between household income inequality and macroeconomic <br/>uncertainty in the United States. Using a novel large-scale macroeconometric <br/>model, we shed light on regional disparities of inequality responses to a national uncertainty <br/>shock. The results suggest that income inequality decreases in most states, with a <br/>pronounced degree of heterogeneity in terms of the dynamic responses. By contrast, <br/>some few states, mostly located in the Midwest, display increasing levels of income <br/>inequality over time. Forecast error variance and historical decompositions highlight <br/>the importance of uncertainty shocks in explaining income inequality in most regions <br/>considered. Finally, we explain differences in the responses of income inequality by means <br/>of a simple regression analysis. These regressions reveal that the income composition as <br/>well as labor market fundamentals determine the directional pattern of the dynamic responses.