Distribution of Household Income in America: Effects of Source of Income, Inflation, and Cost of Living Differentials

This study focuses on four aspects of theinequality of average household income amongthe American states. First, we document changein the inequality of nominal average householdincome between 1979 and 1990. Second, weidentify states contributing to the observedinequality. Third, we examine the pattern instate income convergence-divergence whenspatial and temporal state price differentialsare accounted for. Fourth, we provide estimatesof impacts of alternative income components onincome inequality. We find that inequality inreal income is smaller than that in nominalincome. Also, we conclude that traditionalincome measures that exclude transfer paymentsand other types of income overstateinequality.