Trends in Inequality: Sources and Policy (TRISP)

As part of the NORFACE network, 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 threeway 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.

Key questions:

Our research aims at developing structural models of household behavior in a macroeconomic environment to address six questions:

1. What explains the observed evolution in inequality over the different stages of the life-cycle?
2. What is the role of policy intervention in the medium and long-run for both observed and projected movements in inequality?
3. How does inequality affect the effectiveness of policy interventions?
4. What is the role of macroeconomic feedback (e.g., the evolution of wages and asset returns)?
5. How does inequality move in the short-run (i.e., in response to shocks to the economy) and what do these movements imply for fiscal and monetary policy responses to shocks?
6. How will inequality evolve over the coming decades?