The distribution of wealth and the marginal propensity to consume
Christopher Carroll,
Jiri Slacalek, Kiichi Tokuoka,
Matthew N. White,
Christopher Carroll
Department of Economics, Johns Hopkins University
Search for more papers by this authorKiichi Tokuoka
International Bureau, Ministry of Finance, Tokyo, Japan
Search for more papers by this authorMatthew N. White
Department of Economics, University of Delaware
We thank Michael Ehrmann, Dirk Krueger, Jonathan Parker, Giorgio Primiceri, Karl Schmedders, Gianluca Violante, the referees, and numerous seminar audiences for helpful comments. The views presented in this paper are those of the authors, and should not be attributed to the European Central Bank or the Japanese Ministry of Finance. This paper is a revision of Carroll, Slacalek, and Tokuoka (2014): a new section extends the original analysis to the case of a life-cycle model, and Matthew White has joined as a co-author. Search for more papers by this authorChristopher Carroll,
Jiri Slacalek, Kiichi Tokuoka,
Matthew N. White,
Christopher Carroll
Department of Economics, Johns Hopkins University
Search for more papers by this authorKiichi Tokuoka
International Bureau, Ministry of Finance, Tokyo, Japan
Search for more papers by this authorMatthew N. White
Department of Economics, University of Delaware
We thank Michael Ehrmann, Dirk Krueger, Jonathan Parker, Giorgio Primiceri, Karl Schmedders, Gianluca Violante, the referees, and numerous seminar audiences for helpful comments. The views presented in this paper are those of the authors, and should not be attributed to the European Central Bank or the Japanese Ministry of Finance. This paper is a revision of Carroll, Slacalek, and Tokuoka (2014): a new section extends the original analysis to the case of a life-cycle model, and Matthew White has joined as a co-author. Search for more papers by this authorAbstract
In a model calibrated to match micro- and macroeconomic evidence on household income dynamics, we show that a modest degree of heterogeneity in household preferences or beliefs is sufficient to match empirical measures of wealth inequality in the United States. The heterogeneity-augmented model's predictions are consistent with microeconomic evidence that suggests that the annual marginal propensity to consume (MPC) is much larger than the roughly 0.04 implied by commonly used macroeconomic models (even ones including some heterogeneity). The high MPC arises because many consumers hold little wealth despite having a strong precautionary motive. Our model also plausibly predicts that the aggregate MPC can differ greatly depending on how the shock is distributed across households (depending, e.g., on their wealth, or employment status).
Supporting Information
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