The Personal Distribution of Income and the Composition of Consumption Expenditure

Abstract

ThiB paper uses models of consumption based on the permanent income hypothesis to analyze the effects of changes in the personal distribution of income in the United States on the composition of consumption expenditures. Increasing inequality was found to have a positive effect on the consumption of motor vehicles and parts and services but a negative effect on the consumption of other goods. Relative to income, lagged consumption, or prices, the impact of the distribution of income was small. But in comparison with interest rates, the impact of the distribution of income was large. (031, E21)