Quotation Fischer, Manfred M., Huber, Florian, Pfarrhofer, Michael. 2018. The transmission of uncertainty shocks on income inequality: State-level evidence from the United States.


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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.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title The transmission of uncertainty shocks on income inequality: State-level evidence from the United States
Year 2018
URL http://epub.wu.ac.at/6368/
JEL C11, C30, E3, D31

Associations

Projects
Modeling and forecasting exchange rates in an unified econometric framework
People
Fischer, Manfred M. (Details)
Huber, Florian (Details)
Pfarrhofer, Michael (Details)
Organization
Institute for Economic Geography and GIScience IN (Details)
Research areas (Ă–STAT Classification 'Statistik Austria')
1807 Economic geography (Details)
1810 Geographic Information Systems (GIS) (Details)
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