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Department of Economics, WU (Wirtschaftsuniversität Wien) Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)

No 210:
Does income inequality affect aggregate consumption? Revisiting the evidence

Jesus Crespo Cuaresma (), Jozef Kubala () and Kristina Petrikova ()

Abstract: The standard Keynesian view predicts that equalization of the income distribution leads to an increase in aggregate consumption. We revisit the analysis carried out by the seminal empirical contributions which test such a hypothesis using modern econometric methods and the most comprehensive dataset existing on income distribution measures. Our results indicate that there is no substantive empirical evidence of an effect of income inequality on aggregate consumption.

Keywords: Inequality, aggregate consumption, average propensity to consume; (follow links to similar papers)

JEL-Codes: E22,; D31; (follow links to similar papers)

January 2016

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