Working Paper: NBER ID: w12331
Authors: Janna L. Matlack; Jacob L. Vigdor
Abstract: Simple partial-equilibrium models suggest that income increases at the high end of the distribution can raise price paid by those at the low end of the income distribution. This prediction does not universally hold in a general equilibrium model, or in models where the rich and poor consume distinct products. We use Census microdata to evaluate these predictions empirically, using data on housing markets in American metropolitan areas between 1970 and 2000. Evidence clearly and unsurprisingly shows that decreases in one's own income lead to less housing consumption and less income left over after paying for housing. The effect of increases in others' income, holding one's own income constant, is more nuanced. In tight housing markets, the poor do worse when the rich get richer. In slack markets, at least some evidence suggests that increases in others' income, holding own income constant, may be beneficial.
Keywords: Income Inequality; Housing Affordability; Economic Policy
JEL Codes: D12; D31; I31; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| personal income (D31) | housing consumption (R21) |
| income inequality (D31) | housing outcomes for low-income households (R21) |
| others' income (D31) | housing consumption in tight markets (R21) |
| others' income (D31) | housing consumption in slack markets (R31) |