Consumption, Needs and Inequality

Most empirical studies demonstrating a U-turn in inequality in the United States are based on the distribution of income. However, utility is derived from the consumption of goods and services and there are many reasons to expect the distribution of expenditure to be different from the distribution of income. The author demonstrates that consumption-based inequality indexes actually decrease over the postwar era. This conclusion differs from the stylized facts because of differences in the income and expenditure distributions. Differences also arise from the inclusion of equivalence scales to account for the different needs of heterogeneous households. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.