Consumption and Income Distribution

The empirical analysis presented in this paper is part of an ongoing research effort that is intended to assess the macroeconomic relationship between personal consumption expenditures and income distribution.   This initial effort is proposed as an expository exercise to determine whether there is some empirical evidence of a relationship.  The work was initially done under the auspices of the Congressional Budget Office’s Macroeconomic Analysis Division.  The analyses draw on data from Bureau of Economic Analysis, Census Bureau, Federal Reserve Board, and Bureau of Labor Statistics.  Income distribution was measured using the Gini coefficient reported in the U.S. Census Bureau’s Annual Social and Economic Supplements and real personal consumption expenditures was obtained from the Bureau of Economic Analysis’ National Income Product Accounts.   A vector error correction model was estimated and it was found that the estimated long-term relationship between real personal consumption per capita and income distribution had the expected sign, with long-term increases in income inequality suppressing real personal consumption expenditures per capita. 

JEL Classification: E21, E25, E27, and E32