Consumption Inequality in the Digital Age

This paper studies the welfare effects of digitalization by measuring how digitalization affects consumption of high- and low-income households. We assemble a novel dataset of digital technology used in the production process, link it to US consumption data and establish a new stylized fact: High-income households consume a higher share of digitally produced products than low-income households. Furthermore, inflation has been lower for more digitalized goods. This suggests that digitalization has not only increased income inequality – as previous literature has shown – but has also altered the relative purchasing power of households, disproportionally benefiting the rich. We quantify this effect in a model.