#### Event Title

An Increasingly Negative Outlook: How Income Inequality Affects Personal Consumption Expenditures

#### Faculty Sponsor

Jeffrey A. Summers

#### Location

Jereld R. Nicholson Library

#### Date

5-11-2012 3:00 PM

#### End Date

5-11-2012 4:30 PM

#### Subject Area

Economics (applied)

#### Description

This paper analyzes the effects of income inequality on real personal consumption expenditures (RPCE) within the United States. At first glance, income inequality and RPCE have both risen over time. This paper examines whether income inequality actually causes growth in RPCE. We created a time-series model explaining RPCE with six explanatory variables and data spanning 37 years. Using this model, we were able to determine that income inequality has a statistically significant effect on RPCE. This effect becomes increasingly negative when the distribution of income becomes less equal and there is growth in real income. Thus, our results refute the possibility that income inequality has a positive effect on RPCE.

#### Recommended Citation

Harmon, Daniel R. and Cruz, Gabriel T., "An Increasingly Negative Outlook: How Income Inequality Affects Personal Consumption Expenditures" (2012). *Science and Social Sciences.* Event. Submission 31.

http://digitalcommons.linfield.edu/studsymp_sci/2012/all/31

An Increasingly Negative Outlook: How Income Inequality Affects Personal Consumption Expenditures

Jereld R. Nicholson Library

This paper analyzes the effects of income inequality on real personal consumption expenditures (RPCE) within the United States. At first glance, income inequality and RPCE have both risen over time. This paper examines whether income inequality actually causes growth in RPCE. We created a time-series model explaining RPCE with six explanatory variables and data spanning 37 years. Using this model, we were able to determine that income inequality has a statistically significant effect on RPCE. This effect becomes increasingly negative when the distribution of income becomes less equal and there is growth in real income. Thus, our results refute the possibility that income inequality has a positive effect on RPCE.