The Distribution of Wealth and the Marginal Propensity to Consume

By Christopher D. Carroll, Jiří Slačálek, Kiichi Tokuoka, Matthew N. White. Social Science Research Network, 2017

289 citations recorded by the source corpus.

We present a macroeconomic model calibrated to match both microeconomic and macroeconomic evidence on household income dynamics. When the model is modified in a way that permits it to match empirical measures of wealth inequality in the U.S., we show that its predictions (unlike those of competing models) are consistent with the substantial body of microeconomic evidence which suggests that the annual marginal propensity to consume (MPC) is much larger than the 0.02_0.04 range implied by commonly-used macroeconomic models. Our model also (plausibly) predicts that the aggregate MPC can differ greatly depending on how the shock is distributed across categories of households (e.g., low-wealth versus high-wealth households). JEL Classification: D12, D31, D91, E21

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/1811e2da099f412280560d4f6103b6ae2e3db173

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Citations in the corpus

MPC Heterogeneity and Household Balance Sheets (2016, unknown): “For instance, wealth accumulation is a channel through which patience affects MPCs in heterogeneous agent models (Carroll et al. 2017).”
Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy (2016, background): “Next to their wealth, households differ in their patience (as in Krusell and Smith 1998 and Carroll et al. 2015), productivity (as in Castañeda et al. 2003 and Nakajima 2012a), and employment status (as in Krusell et al. 2010).”
Consumer Spending during Unemployment: Positive and Normative Implications (2019, unknown): “…uncertainty in the prior literature about the magnitude of such a spike because Card, Chetty, and Weber (2007) demonstrate using European data that job-finding hazards spike much less than UI exit hazards at UI exhaustion. an economic shock arrives (Kaplan and Violante 2014, Carroll et al. 2017).”
What Would You Do with $500? Spending Responses to Gains, Losses, News, and Loans (2018, methodology): “Our model achieves this by allowing for discount factor heterogeneity in the spirit of Carroll et al. (2017) and Krueger et al. (2016), which we calibrate to match the fraction of households with less than $1,000 in financial wealth.”