Effect of household consumption volatility on income inequality in developing countries: a quantile regression approach

Purpose This study assesses how household consumption volatility affects income inequality using panel data from 94 developing countries (1990–2022). The analysis also explores regional differences. Design/methodology/approach Quantile instrumental variables regression measures the link between household consumption volatility and income inequality. This method effectively handles asymmetric distributions and extreme values, key for evaluating uneven effects across income groups. Buffer-stock saving rates help analyze shock absorption, increasing policy relevance. The sample encompasses 94 developing countries (1990–2022), with a particular emphasis on Sub-Saharan Africa. Findings The results clearly indicate that household consumption volatility leads to increased income inequality in developing countries. This effect is most pronounced in countries that initially have lower levels of inequality, as shown by significant effects at the SIVQR 0.1 and SIVQR 0.25 quantiles. In the case of sub-Saharan Africa, the positive and statistically significant relationship between consumption volatility and income inequality is particularly notable. However, in other developing regions, this relationship is not statistically significant, highlighting important regional differences in how volatility impacts inequality. Originality/value This research provides evidence on the relationship between household consumption volatility and income inequality in developing countries, with a focus on sub-Saharan Africa. The results suggest that enhancing macroeconomic stability may help mitigate inequality, particularly in contexts where volatility has a more pronounced impact.