• Like
Fisher, Johnson and Smeeding - Exploring the Divergence of Consumption and Income Inequality During the Great Recession
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

Fisher, Johnson and Smeeding - Exploring the Divergence of Consumption and Income Inequality During the Great Recession

  • 121 views
Published

Jonathan Fisher's presentation at the 2014 American Economic Association Annual Conference. The presentation explores why income inequality diverged from consumption inequality during the Great …

Jonathan Fisher's presentation at the 2014 American Economic Association Annual Conference. The presentation explores why income inequality diverged from consumption inequality during the Great Recession, finding that those with the biggest decrease in consumption were the highest income individuals, while those at the bottom of the income distribution had falls in consumption that were smaller and closer to the drop in income.

Our results suggest three main factors associated with the observed patterns. First, property values dropped by a larger percentage for high income households, a negative housing wealth effect led these households to cut back consumption. Second, consumer confidence fell by a larger percentage for higher income households. Finally, the transfer and tax policies boosted the income of the lower income quintiles, preserving their consumption so that it did not fall by as much as it would have otherwise.

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
121
On SlideShare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
0
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Exploring the Divergence of Consumption and Income Inequality During the Great Recession Jonathan Fisher David Johnson Timothy Smeeding Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. The research in this paper does not use any confidential Census Bureau information.
  • 2. The Consumer Expenditure (CE) Surveys • 1984-2011 Interview Surveys • All four-quarter consumer units disaggregated to the individual using an equivalence scale. • Weights adjusted to account for attrition across the four quarters. • Adjusted to 2010$ using CPI-U-RS. • We impute income for missing observations and estimate taxes for everyone (Fisher, Johnson, and Smeeding, 2013; econofish.wordpress.com)
  • 3. Defining Income and Consumption • Disposable Personal Income (DPI): income from employment, investment, government transfers, and inter-household transfers of money plus tax credits and food stamps, less income taxes and property taxes. • Consumption: Outlays for non-durables, plus imputed rent, service flow from vehicles, and the dollar value of free or subsidized housing.
  • 4. Inequality using Gini Coefficient (2006=100) 110 105 100 95 90 Disposable Income 85 Consumption 80 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
  • 5. The difference between consumption and income is seen in the NIPA/PCE data too 12,000 1.00 11,000 Disposable Personal Income 0.98 Billions of Dollars 10,000 0.96 9,000 Personal Consumption Expenditures 8,000 0.94 7,000 0.92 6,000 Average Propensity to Consume 0.90 5,000 4,000 0.88 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
  • 6. Staircases going in opposite directions: Percent Change by Respective Quintile, 2006-2011 0.0% Q1 Q2 -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% -16.0% -18.0% -20.0% Disposable Income Consumption Consumption by Income Quintile Q3 Q4 Q5
  • 7. Staircases going in opposite directions: Percent Change by Respective Quintile, 2006-2011 0.0% Q1 Q2 -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% -16.0% -18.0% Disposable Income Consumption Consumption by Income Quintile -20.0% Q3 Q4 Q5
  • 8. Staircases going in opposite directions: Percent Change by Respective Quintile, 2006-2011 0.0% Q1 Q2 -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% -16.0% Disposable Income Consumption -18.0% -20.0% Consumption by Income Quintile Q3 Q4 Q5
  • 9. What are the major forces of the Great Recession? • • • • • High and persistent unemployment Large and persistent housing market crash Large but short-term financial market crash Loss in consumer confidence Policy response that increased transfers and tax credits aimed at lower half of distribution
  • 10. Percent Change in Employment Income by Income Quintile, 2006-2011 0% Q1 Q2 Q3 Q4 -5% -10% -15% -20% -25% -30% High and persistent unemployment Q5
  • 11. Percent Change in Consumption by Income Quintile: Homeowners versus Renters (2006-2011) 0% Q1 Q2 Q3 -5% -10% -15% Homeowners -20% Renters -25% Large and persistent housing market crash Q4 Q5
  • 12. Percent Change in Property Value by Income Quintile, 2006-2011 0% Q1 Q2 Q3 Q4 -5% -10% -15% -20% -25% -30% Large and persistent housing market crash Q5
  • 13. Percent Change in Consumption by Income Quintile: Securities Owners vs Non-Owners, 2006-2011 15% Securities owners 10% Non-owners 5% 0% Q1 Q2 Q3 Q4 -5% -10% -15% -20% -25% Large but short-term financial market crash Q5
  • 14. Percent Change in Consumer Confidence by Income Quintile, 2006-2011 (Survey of Consumers) 0% Q1 Q2 Q3 -5% -10% -15% -20% -25% -30% Loss in consumer confidence Q4 Q5
  • 15. Back-of-the envelope counterfactuals 1) How would consumption inequality have changed if the change in consumption equaled the change in income by quintile? 2) How would income and consumption inequality have changed if there were no transfer and tax policy response? 3) Housing wealth effect -- how would consumption inequality have changed if the change in consumption equaled the change in property value by income quintile, using a standard housing wealth elasticity (0.06)?
  • 16. Staircases going in opposite directions: Percent Change by Respective Quintile, 2006-2011 0.0% Q1 Q2 -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% -14.0% -16.0% Disposable Income Consumption -18.0% -20.0% Consumption by Income Quintile Q3 Q4 Q5
  • 17. Counterfactual change in consumption inequality assuming change in consumption is equal to the change in income by income quintile 106 104 102 100 98 96 Consumption 94 Counterfactual #1 92 Income 90 2006 2007 2008 2009 Counterfactual #1 2010 2011
  • 18. Back-of-the envelope counterfactuals 1) How would consumption inequality have changed if the change in consumption equaled the change in income by quintile? 2) How would income and consumption inequality have changed if there were no transfer and tax policy response? 3) Housing wealth effect -- how would consumption inequality have changed if the change in consumption equaled the change in property value by income quintile, using a standard housing wealth elasticity (0.06)?
  • 19. Mean Government Transfer Income by Disposable Income Quintile ($) $2,500 $2,000 $1,500 $1,000 $500 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Policy response
  • 20. Counterfactual change in C&Y inequality assuming no increase in transfer benefits or tax credits 106 104 102 100 98 96 Income Inc Counterfactual #2 Cons Counterfactual #2 Consumption 94 92 90 2006 2007 2008 2009 Counterfactual #2 2010 2011
  • 21. Back-of-the envelope counterfactuals 1) How would consumption inequality have changed if the change in consumption equaled the change in income by quintile? 2) How would income and consumption inequality have changed if there were no transfer and tax policy response? 3) Housing wealth effect -- how would consumption inequality have changed if the change in consumption equaled the change in property value by income quintile, using a standard housing wealth elasticity (0.06)?
  • 22. Counterfactual change in consumption inequality assuming standard housing wealth effects by income quintile 106 104 102 100 98 96 Consumption Cons Counterfactual #3 DPI 94 92 90 2006 2007 2008 2009 Counterfactual #3 2010 2011
  • 23. Why might have income and consumption inequality diverged during the Great Recession? • It was generated by a drop in consumption at the top of the income distribution. – Loss in housing wealth was higher for high income households. – Drop in consumer confidence was higher for high income households.
  • 24. Tax and transfer changes were effective • Tax and transfer policies during the Great Recession: – helped lower income inequality; – helped preserve consumption in the bottom half of the distribution. • How will the removal of these more generous benefits affect inequality going forward? – Cut in SNAP – Removal of UI benefit extension – Return of full payroll tax