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Because of Monopolies, Income Inequality Significantly Understates Economic Inequality
In social science research, household income is widely used as a stand-in for, or approximation to, the economic well-being of households. In a parallel way, income-inequality has been employed as a stand-in for inequality of economic well-being, or for brevity, "economic-inequality." But there is a force in market economies, ones with extensive amounts of monopoly, like the United States, which leads income-inequality to understate economic-inequality. This force has not been recognized before and derives from how monopolies behave. Monopolies, of course, raise prices. This reduces the ...
Using home maintenance and repairs to smooth variable earnings
Recent research indicates that the marked increase in U.S. income inequality over the last twenty-five years has not been matched by a similar increase in consumption inequality. This paper examines the role of saving/dissaving in a house as a vehicle for consumption smoothing. Data from the American Housing Survey show that expenditures on home maintenance and repairs are economically significant, amounting to roughly $1,750 per household each year. This figure is comparable to the labor literature estimates that put households' average annual transitory income variance at about $2,200. Our ...
Wealth in the Utility Function and Consumption Inequality
Wealth in the utility function (WIU) has been increasingly used in macroeconomic modelsand this specification can be justified by a few theories such as Max Weber’s (1904-05, German; 1958) theory on “spirit of capitalism.” We incorporate the WIU into a general equilibriumconsumption-portfolio choice model to study the implications of the WIU for consumption inequality, equilibrium interest rate, and equity premium—an unexplored area in the literature.Our general equilibrium framework features recursive exponential utility, uninsurable labor risks,and multiple assets and can deliver ...