Unequal ground: oil booms and income inequality in the USA

Abstract

AbstractThis paper examines the impact of oil price and quantity shocks on income inequality in the USA. Using micro income data, we construct measures of pre‐tax money income inequality at the state level for the period 1980–2017. We find that a $10 increase in oil price increases inequality, measured by the ratio of pre‐tax income of the 90th percentile to 10th percentile (p90/p10), by 3.8 percentage points in states with high levels of oil endowments per capita. The increase in capital income to households at the top of the distribution drives the observed change in inequality. In addition to price shocks, we study the impact of quantity shocks that arise from oil discoveries. Quantity shocks have no effect on the overall income distribution.