Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/201672
Authors: 
Fischer, Manfred M.
Huber, Florian
Pfarrhofer, Michael
Year of Publication: 
2018
Series/Report no.: 
Working Papers in Economics 2018-04
Abstract: 
In this paper, we explore the relationship between state-level household income inequality and macroeconomic uncertainty in the United States. Using a novel large-scale macroeconometric model, we shed light on regional disparities of inequality responses to a national uncertainty shock. The results suggest that income inequality decreases in most states, with a pronounced degree of heterogeneity in terms of shapes and magnitudes of the dynamic responses. By contrast, some few states, mostly located in the West and South census region, display increasing levels of income inequality over time. We find that this directional pattern in responses is mainly driven by the income composition and labor market fundamentals. In addition, forecast error variance decompositions allow for a quantitative assessment of the importance of uncertainty shocks in explaining income inequality. The findings highlight that volatility shocks account for a considerable fraction of forecast error variance for most states considered. Finally, a regression-based analysis sheds light on the driving forces behind differences in state-specific inequality responses.
Subjects: 
income distribution
inequality
uncertainty shocks
US states
global vector autoregressive model
JEL: 
C11
C30
E3
D31
Document Type: 
Working Paper
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