The Spillover Effects of Top Income Inequality

Top income inequality in the United States has increased considerably within occupations. This phenomenon has led to a search for a common explanation. We instead develop a theory where increases in income inequality originating within a few occupations can "spill over" through consumption...

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Published in:NBER Working Paper Series 2023-06
Main Authors: Gottlieb, Joshua D, Hémous, David, Hicks, Jeffrey, Olsen, Morten G
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Language:English
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Economic theory
Income inequality
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Hémous, David
Hicks, Jeffrey
Olsen, Morten G
description Top income inequality in the United States has increased considerably within occupations. This phenomenon has led to a search for a common explanation. We instead develop a theory where increases in income inequality originating within a few occupations can "spill over" through consumption into others. We show theoretically that such spillovers occur when an occupation provides non-divisible services to consumers, with physicians our prime example. Examining local income inequality across U.S. regions, the data suggest that such spillovers exist for physicians, dentists, and real estate agents. Estimated spillovers for other occupations are consistent with the predictions of our theory.
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subjects Economic theory
Income inequality
title The Spillover Effects of Top Income Inequality
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