The Distributional Effects of Economic Uncertainty*

ABSTRACT

We study the distributional implications of uncertainty shocks by developing a model that links macroeconomic aggregates to the US distribution of earnings and consumption. Our findings suggest that the fraction of low‐earning workers decreases initially, while the share of households reporting low consumption increases. At longer horizons, the fraction of low‐income workers increases, but the consumption distribution reverts to its preshock shape. While the first phase reduces income inequality and increases consumption inequality, in the second stage income inequality rises, and the effects on consumption inequality dissipate.