Economics Seminar- Ha Bui

This paper studies the impact of local income inequality on household consumption and welfare through the changing availability of varieties of consumer goods. I find that in high-inequality counties, more varieties are offered to households. However, households living in high-inequality counties purchase fewer varieties compared to similar ones in low-inequality counties. This happens even though households shop in more stores in high-inequality counties. These effects are even more pronounced for individuals in the tails of the income distribution. To quantify channels underlying these empirical findings and speak to the welfare impact, I develop a model featuring an endogenous number of varieties produced by firms and a choice over which varieties to purchase by households. After estimating many of the parameters of the model, I show that the model can reproduce both empirical facts.