Income inequality and the depth of economic downturns

Produced by: 
Bank of International Settlements
Available from: 
May 2021
Paper author(s): 
Emanuel Kohlscheen
Marco Lombardi
Egon Zakrajšek
Poverty - Inequality - Aid Effectiveness

Using an international panel data set, we analyze the implications of rising income inequality for aggregate consumption. We document that greater concentration of (after-tax) income in the top decile is associated with a significantly larger and more persistent contraction in consumption in the aftermath of economic downturns. These findings are consistent with lower propensities to consume among wealthier households and imply that disparities in income flows at turning points of the business cycle can significantly influence macroeconomic outcomes.


Research section: 
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