Aggregate Demand and the Top 1 Percent
- (pp. 588-92)
AbstractThere 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.
Citation2017. "Aggregate Demand and the Top 1 Percent." American Economic Review, 107 (5): 588-92. DOI: 10.1257/aer.p20171004
- D31 Personal Income, Wealth, and Their Distributions
- D33 Factor Income Distribution
- E21 Macroeconomics: Consumption; Saving; Wealth
- E43 Interest Rates: Determination, Term Structure, and Effects