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The Impact of Oil Price Shocks on Income Inequality: Evidence from State-Level Data of the United States

Author

Listed:
  • Xin Sheng

    (Lord Ashcroft International Business School, Anglia Ruskin University, Chelmsford, CM1 1SQ, United Kingdom)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield, 0028, South Africa)

Abstract

This paper examines the impacts of oil price shocks on income inequality in the United States (US). Using the local projection method, we investigate linear and nonlinear impulse responses of household income inequality to oil price shocks based on a newly constructed large panel dataset including all 50 US states plus the District of Columbia. We disaggregate oil price shocks according to their origin into oil supply, global economic activity, oil consumption demand and oil inventory demand shocks, and test the dynamic response of income inequality to oil price structural shocks, contingent on the status of oil dependence in individual US states. Our results, based on the linear projection model, show that oil supply shocks lead to higher income inequality in the short term, but lower-income inequality in the medium- and long-terms. Moreover, economic activity shocks and oil inventory demand shocks mainly exert negative impacts on income inequality over time, while both positive and negative effects of oil consumption demand shocks on income inequality are observed. Our nonlinear impulse response results reveal some evidence of heterogeneous responses of income inequality to oil price shocks between high- and low-oil dependence US states.

Suggested Citation

  • Xin Sheng & Rangan Gupta, 2021. "The Impact of Oil Price Shocks on Income Inequality: Evidence from State-Level Data of the United States," Working Papers 202128, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202128
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    Cited by:

    1. Akinlo, Anthony Enisan, 2024. "Oil Price Shocks and Income Inequality in Nigeria: Evidence from Nonlinear ARDL Approach," African Journal of Economic Review, African Journal of Economic Review, vol. 12(1), March.

    More about this item

    Keywords

    Inequality; Oil price Shocks; State-level US data; Linear and nonlinear projection models;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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