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This paper studies how digitalization affects consumption inequality. We assemble a novel
dataset of digital technology in consumption, and establish that high-income households consume
a larger share of digitally produced products than low-income households. We show
that these products become relatively cheaper, which benefits rich households and contributes
to consumption inequality. In a structural model with heterogeneous workers and nonhomothetic
preferences, we quantify the impact of digitalization on consumption inequality.
The model demonstrates that a U-shaped income polarization translates into J-shaped welfare
changes, as the price effect mutes income gains at the bottom while amplifying them at the top.
