Abstract

Income inequality is one of the most visible, and most controversial, characteristics of an economy. A short drive through any large city will reveal profound differences in the living conditions of the residents. The causes of this inequality and its broader effects are not so straightforward and indeed are the subject of a voluminous literature. This chapter examines the evolution of income inequality over the very long run and identifies its major determinants, focusing on the United States but placing patterns for the U.S. in an international context. It also examines related dimensions of inequality – in wealth, consumption, health, and broad measures of living standards. Finally, it examines the effects of economic inequality on other social phenomena, including economic growth, health, and happiness.