Income Inequality and Technology Diffusion

This paper investigates how household income inequality shapes the diffusion of tech-
nologies. A simple demand side model with hierarchical preferences is used to show that
after some minimum level of average income relative to the price of the technology is
achieved, more consumer inequality hinders the diffusion process for new technologies.
Using data on 39 major technologies, the empirical part tests this proposition. It is found
that indeed more inequality, as measured by the Gini coefficient, is detrimental to the
diffusion of new technology, while a large middle class, measured by quantile shares of
income, is conducive to technology diffusion. These effects are stronger for consumer than
for producer technologies. Furthermore, there is some evidence that the negative effect of
inequality on the diffusion of technologies is more pronounced in rich countries.