The impact of macroeconomic uncertainty on inequality: An empirical study for the UK

Theophilopoulou, Angeliki (2018): The impact of macroeconomic uncertainty on inequality: An empirical study for the UK.

Abstract

The role of economic uncertainty on macroeconomic fluctuations has been studied extensively in the literature. In the aftermath of the financial crisis and in the process of its exit from the EU, the UK is facing high levels of uncertainty on future economic growth, investment, financial markets etc. In this paper we investigate whether macro economic uncertainty affects income, wage and consumption inequality. Our findings suggest that the measures of inequality increase in the aftermath of an uncertainty shock but decrease in the medium to long run, converging to lower levels. Macroeconomic uncertainty appears to account significantly for the variation of income and consumption inequality. Using detailed micro data we decompose households' income to investigate transmission channels where uncertainty shocks affect differently the percentiles of income and consumption distributions. The financial segmentation and portfolio channels appear to play an important role in this heterogeneous response.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macroeconomic uncertainty, income inequality, consumption inequality,SVARs
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; D - Microeconomics > D3 - Distribution; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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