The impact of macroeconomic uncertainty on inequality: An empirical study for the United Kingdom

Abstract

Copyright © 2021 The Authors. The role of economic uncertainty on macroeconomic fluctuations has been studied extensively in the empirical literature; however, its distributional effects have received little attention. This paper attempts to fill this gap by investigating whether macroeconomic uncertainty affects income, wage, and consumption inequality in the United Kingdom. Our findings suggest that measures of inequality fall significantly to a macroeconomic uncertainty shock. Households in the middle and right tail of the income distribution appear to be more adversely affected relative to ones in the left tail. Income composition and households indebtedness explain a large part of the heterogeneous response. Uncertainty also appears to account significantly for the variation of income and consumption inequality.