Distributional Decomposition of Consumption Inequality Change During COVID-19

TL;DR

This paper analyzes how COVID-19 affected U.S. consumption inequality by decomposing changes into various factors using distribution regression and counterfactual scenarios.

Contribution

It introduces a distributional decomposition method to attribute consumption inequality changes to specific variables during COVID-19.

Findings

Conditional distribution changes explain most of the decline in inequality among male-headed households.

Asset holdings significantly increased consumption inequality across measures.

Changes in household characteristics reduced overall consumption inequality.

Abstract

We decompose the U.S. consumption inequality distributional changes during the COVID-19 phase. Analyzing the Consumption Expenditure Interview Survey data, we decompose observed changes in consumption inequality into components attributable to several individual variables. Using a distribution regression method, we construct counterfactual distributions under the scenario in which the consumption structure or any specific variable would have remained the same between the two years before and after the onset of the COVID-19 pandemic. We find that changes in the conditional distribution of consumption explain most of the observed decline in consumption inequality among male-headed households between 2018 and 2022. The rise in asset holdings has significantly increased the consumption inequality in all measures. Moreover, the changes in a set of household characteristics have significantly reduced the consumption inequality. Our analyses focus on the well-measured consumption components that are robust to the measurement errors in consumption data.