Aggregate Demand and the Top 1 Percent

Adrien Auclert and Matthew Rognlie

American Economic Review, 2017, vol. 107, issue 5, 588-92

Abstract: There has been a large rise in US top income inequality since the 1980s. We merge a widely studied model of the Pareto tail of labor incomes with a canonical model of consumption and savings to study the consequences of this increase for aggregate demand. Our model suggests that the rise of the top 1 percent may have led to a large increase in desired savings and can explain a 0.45pp to 0.85pp decline in long-run real interest rates. This effect arises from both a wealth effect at the top and increased precautionary savings from declines lower in the income distribution.

JEL-codes: D31 D33 E21 E43 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.p20171004
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Citations: View citations in EconPapers (12)

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