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The Distribution of Wealth and the Marginal Propensity to Consume

Christopher Carroll, Jiri Slacalek (), Kiichi Tokuoka () and Matthew White ()

No 14-15, Working Papers from University of Delaware, Department of Economics

Abstract: 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 that 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).

Keywords: Microfoundations; Wealth Inequality; Marginal Propensity to Consume (search for similar items in EconPapers)
JEL-codes: D12 D31 D91 E21 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014
New Economics Papers: this item is included in nep-dge and nep-mac
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Journal Article: The distribution of wealth and the marginal propensity to consume (2017) Downloads
Working Paper: The distribution of wealth and the marginal propensity to consume (2014) Downloads
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