Stock returns and income inequality: Asymmetric evidence from state level data in the U.S.

Abstract

We assess the impact of stock returns on income inequality in the U.S. using linear and nonlinear models. When we use income inequality data from the U.S. as a whole, we only find un-equalizing effects of stock returns in the short run. However, when we estimate the models for each state individually, the linear model yields significant short-run effects in 38 states that last into the long run in 17 states. The numbers increase to 42 and 24, respectively, when we estimate the nonlinear model. In the most affected states, we find that positive stock returns have un-equalizing effects on income inequality and negative returns have equalizing effects.