Trends in Inequality: Sources and Policy

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We develop structural household life-cycle models in macroeconomic environments to evaluate the effects of inequality in income, wealth, hours worked and consumption on welfare, and to quantitatively decompose the trends in inequality into their various sources. We then use these models to evaluate the impact of fiscal and monetary policies on inequality and to characterize welfare improving policies. Our approach will account for the interdependencies of all stages of a household's life-cycle and the three-way interaction between inequality, the macroeconomy, and policy. Our structural interpretation of the data will provide key information for predicting future trends of inequalities and for the design of policy, thereby providing important information to policy makers. We organize our project according to two main overarching themes, sources and policies, which we describe in two work packages. Each work package contains several subprojects (12 in total) that build on each other. The subprojects emphasize different stages of the life-cycle, use different datasets and analyze different sets of policy instruments. Joining forces in one project has the substantial methodological advantage that we can borrow from each other's expertise with respective datasets and in modeling different crucial life cycle stages and policy decisions affecting inequality. We will communicate our findings internally and externally through several smaller internal workshops, a medium sized international conference, scientific papers, policy briefs, and our joint website.