Income Inequality Driven by Permanent Factors and Idiosyncratic Risks
The article examines income inequality in the 1980s and 90s using data on consumption and income. By breaking down changes in family income into different components, the researchers found that most of the increase in inequality was due to permanent factors and individual income risks. They also discovered that considering risk-sharing is crucial for accurate modeling. Interestingly, they did not find evidence supporting a theory explaining the equity premium puzzle.