Grant Category

Macroeconomics and Inequality

What are the implications of inequality on the long-term stability of our economy and its growth potential?

What are the implications of inequality on the long-term stability of our economy and its growth potential?

A larger share of U.S. national income has been flowing to the individuals at the top of the income and wealth ladder. These individuals are less likely to spend and more likely to save their money than those with lower income. There is evidence that growing income inequality may be contributing to the so-called secular stagnation of macroeconomic growth.

Growing income inequality likely bears on macroeconomic performance through other channels as well. The lower real interest rates that have resulted from higher global saving will limit the ability of conventional monetary policy to stabilize the economy in the next economic downturn. Growing inequality has also contributed to a growing sense that the economy isn’t working for most families, fueling both distrust in institutions and greater political polarization.

We need to better understand the implications of inequality on the long-term stability of our economy and its growth potential. The large and sustained rise in inequality across income and wealth groups, as well as the disparate performance of different geographies and demographic groups, make understanding how these trends could exacerbate economic instability and reduce economic growth a pressing national concern.

  • The effects of monetary policy
  • The effects of fiscal policy
  • The effects of the tax and transfer system
  • Political economy

Explore the Grants We've Awarded

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The macro-effects of unemployment insurance: A simulation-based discontinuity design approach

Grant Year: 2018

Grant Amount: $41,087

Grant Type: academic

Unemployment insurance was expanded several times during the Great Recession and its aftermath, with the maximum duration reaching up to 99 weeks in some states. Researchers have been debating the macroeconomic impact of those expansions on unemployment and employment, but little research exists on the macroeconomic effects of previous expansions. This project will fill this gap by looking at unemployment benefit expansions going back to 1976. Similar to previous research, the researchers will use “trigger notices” from the U.S. Department of Labor to see when programs were turned on. Their methodology, however, differs from previous research because rather than depending upon measurement error in the unemployment rate, their method allows them to look at the impacts when a program has multiple triggers. The researchers will then compare the effects of expansions during the Great Recession to previous expansions.

Income-specific consumption baskets and the interaction between inequality and monetary policy

Grant Year: 2018

Grant Amount: $55,000

Grant Type: academic

Macroeconomists are increasingly looking at the interaction between economic inequality and macroeconomic policy. Past research has looked at the impact of monetary policy on the level of income or wealth inequality, but a new literature has started to focus on how the level of inequality changes the effectiveness of countercyclical monetary and fiscal policy. This project helps push that research frontier forward by investigating how differences in consumption baskets among households may affect the transmission of monetary policy. First, the researchers will document differences in consumption baskets across the income distribution. Using those data, they will measure the variation in price stickiness among U.S. households. If this heterogeneity varies significantly by income level, it’s possible that the upward shift of income over the past several decades may have significantly enhanced or reduced the effectiveness of monetary policy. Understanding the strength of monetary policy in an era of high economic inequality is critical for informing policymakers of the optimal strategy for fighting the next recession.

Experts

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Amy Claessens

University of Wisconsin, Madison

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Sydnee Caldwell

University of California, Berkeley

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Kevin Rinz

Washington Center for Equitable Growth

Senior Fellow and Research Advisor

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Giovanni Righi

University of California, Los Angeles

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Jon Steinsson

University of California, Berkeley

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