Discussion Paper Details

Please find the details for DP12209 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data

Author(s): Benjamin Faber and Thibault Fally

Publication Date: August 2017

Keyword(s): Firm Heterogeneity, household price indices, real income inequality and scanner data

Programme Area(s): International Trade and Regional Economics

Abstract: A growing literature has documented the role of firm heterogeneity within sectors in accounting for nominal income inequality. This paper explores the implications for household price indices across the income distribution. Using detailed matched US home and store scanner microdata, we present evidence that rich and poor households source their consumption from different parts of the firm size distribution within disaggregated product groups. We use the microdata to examine alternative explanations, propose a tractable quantitative model with two-sided heterogeneity that rationalizes the observed moments, and calibrate it to explore general equilibrium counterfactuals. We find that larger, more productive firms endogenously sort into catering to the taste of wealthier households, and that this gives rise to asymmetric effects on household price indices. These effects matter for real income inequality. We find that they amplify observed changes in nominal inequality over time, lead to a more regressive distribution of the gains from international trade, and give rise to new distributional implications of business regulations.

For full details and related downloads, please visit:

Bibliographic Reference

Faber, B and Fally, T. 2017. 'Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data'. London, Centre for Economic Policy Research.