DP7582 Cross Sectional Facts for Macroeconomists

Author(s): Dirk Krueger , Fabrizio Perri , Luigi Pistaferri , Giovanni L Violante

Publication Date: November 2009

Keyword(s): wages , income , consumption , wealth , long-run trends in inequality

JEL(s): D31 , D91 , E21

Programme Areas: International Macroeconomics , Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP7582.asp

This paper provides an introduction to the special issue of the Review of Economic Dynamics on "Cross Sectional Facts for Macroeconomists''. The issue documents, for nine countries, the level and the evolution, over time and over the life cycle, of several dimensions of economic inequality, including wages, labor earnings, income, consumption, and wealth. After describing the motivation and the common methodology underlying this empirical project, we discuss selected results, with an emphasis on cross-country comparisons. Most, but not all, countries experienced substantial increases in wages and earnings inequality, over the last three decades. While the trend in the skill premium differed widely across countries, the experience premium rose and the gender premium fell virtually everywhere. At a higher frequency, earnings inequality appears to be strongly counter-cyclical. In all countries, government redistribution through taxes and transfers reduced the level, the trend and the cyclical fluctuations in income inequality. The rise in income inequality was stronger at the bottom of the distribution. Consumption inequality increased less than disposable income inequality, and tracked the latter much more closely at the top than at the bottom of the distribution. Measuring the age-profile of inequality is challenging because of the interplay of time and cohort effects.