Conventional wisdom predicts that changes in macroeconomic conditions significantly affect income inequality. In this paper, we hypothesize that the way in which macroeconomic conditions affect inequality depends on how these conditions influence the constituents of total inequality: inequality of opportunity (IO) and inequality of effort (IE). Using the PSID database for the United States (1970–2009), we first decompose total inequality into these components. Then, we specify a dynamic model that relates each inequality component to a set of macroeconomic factors. Apart from real GDP and inflation rates, the most widely used factors in the literature, we also consider outstanding consumer credits and public welfare and health care expenditures. We find that real GDP and outstanding credits have a negative and significant effect upon IO and IE, while inflation has a positive and significant effect only on IE, and welfare expenditures have a negative and significant effect only on IO.
The authors acknowledge the financial support of the Ministerio de Economía y Competitividad of Spain: Marrero through project ECO2013-48884-C3-3-P and Rodríguez through project ECO2013-46516-C4-4-R. Both authors acknowledge financial support from Comunidad de Madrid (Spain) under project S2015/HUM-3416-DEPOPORCM and Fundación Caja Canarias (Spain). Rodríguez also appreciates the financial support of the Instituto de Estudios Fiscales (Spain). All views, and any errors or omissions are our own responsibility.
Marrero, G. and Rodríguez, J. (2016), "Macroeconomic Determinants of Inequality of Opportunity in the United States: 1970–2009", Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting (Research on Economic Inequality, Vol. 24), Emerald Group Publishing Limited, pp. 307-330. https://doi.org/10.1108/S1049-258520160000024013Download as .RIS
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