The regional transmission of uncertainty shocks on income inequality in the United States

Fischer, Manfred M. ORCID: and Huber, Florian ORCID: and Pfarrhofer, Michael ORCID: (2019) The regional transmission of uncertainty shocks on income inequality in the United States. Working Papers in Regional Science, 2019/01. WU Vienna University of Economics and Business, Vienna.


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This paper explores the relationship between 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 the dynamic responses. By contrast, some few states, mostly located in the Midwest, display increasing levels of income inequality over time. Forecast error variance and historical decompositions highlight the importance of uncertainty shocks in explaining income inequality in most regions considered. Finally, we explain differences in the responses of income inequality by means of a simple regression analysis. These regressions reveal that the income composition as well as labor market fundamentals determine the directional pattern of the dynamic responses.

Item Type: Paper
Additional Information: The authors gratefully acknowledge financial support from the Austrian National Bank, Jubilaeumsfond grant no. 17650.
Keywords: Income distribution, US states, macroeconomic volatility, global vector autoregressive model
Classification Codes: JEL C11, C30, E3, D31
Divisions: Departments > Sozioökonomie > Wirtschaftsgeographie und Geoinformatik > Fischer
Depositing User: Gertraud Novotny
Date Deposited: 11 Jan 2019 09:23
Last Modified: 26 Apr 2021 10:58


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