The Macro Politics of Market Income Inequality in the United States.

This paper uses time series methods to answer the question of what determines income inequality in the United States. Specifically, labor demand, labor supply, household demographics, and wage setting institutions are considered as possible determinants of the pre-tax and transfer, or "market" level of income inequality. Of particular interest is the connection between aggregate policy and this important societal outcome of income equality. While the government takes explicit action through taxes and transfers to equalize the income that is produced by the market, the dependent variable in this paper measures income inequality before taxes are subtracted and government transfers added to household income. This creates an interesting test of the ability of policymakers to manipulate market outcomes indirectly, rather than through programs explicitly designed to redistribute income. [ABSTRACT FROM AUTHOR]