American Economic Review: Vol. 104 No. 5 (May 2014)

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The Distribution of Wealth and the MPC: Implications of New European Data

Article Citation

Carroll, Christopher D., Jiri Slacalek, and Kiichi Tokuoka. 2014. "The Distribution of Wealth and the MPC: Implications of New European Data." American Economic Review, 104(5): 107-11.

DOI: 10.1257/aer.104.5.107

Abstract

Using a standard, realistically calibrated model of buffer-stock saving with transitory and permanent income shocks, we study how cross-country differences in the wealth distribution and household income dynamics affect the marginal propensity to consume out of transitory shocks (MPC). Across the 15 countries in our sample, we find that the aggregate consumption response ranges between 0.1 and 0.4 and is stronger (i) in economies with large wealth inequality, where a larger proportion of households has little wealth, (ii) under larger transitory income shocks, and (iii) when we consider households only use liquid assets (rather than net wealth) to smooth consumption.

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Authors

Carroll, Christopher D. (Johns Hopkins U)
Slacalek, Jiri (European Central Bank)
Tokuoka, Kiichi (Japanese Ministry of Finance)

JEL Classifications

D31: Personal Income, Wealth, and Their Distributions
E21: Macroeconomics: Consumption; Saving; Wealth


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