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

Manfred M. Fischer, Florian Huber, Michael Pfarrhofer

    Publication: Working/Discussion PaperWU Working Paper

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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.
    Original languageEnglish
    Place of PublicationVienna
    PublisherWU Vienna University of Economics and Business
    Publication statusPublished - 2019

    Publication series

    NameWorking Papers in Regional Science

    WU Working Paper Series

    • Working Papers in Regional Science

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