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. / Series: Working Papers in Regional Science
| Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:6368 |
| Date | January 2018 |
| Creators | Fischer, Manfred M., Huber, Florian, Pfarrhofer, Michael |
| Publisher | WU Vienna University of Economics and Business |
| Source Sets | Wirtschaftsuniversität Wien |
| Language | English |
| Detected Language | English |
| Type | Paper, NonPeerReviewed |
| Format | application/pdf |
| Relation | https://orcid.org/0000-0002-0033-2510, http://epub.wu.ac.at/6368/ |
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