← Search

American Economic Review Vol. 104 No. 5 2014

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

Christopher D. Carroll1; Jiri Slacalek2; Kiichi Tokuoka3

1 Department of Economics, Johns Hopkins University, Baltimore, MD 21218–2685 (e-mail: ) · 2 DG Research, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany (e-mail: ) · 3 Ministry of Finance, 3-1-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8940, Japan (e-mail: )

open access

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.

DOI
10.1257/aer.104.5.107
Volume
104
Issue
5
Pages
107-111
Language
en
Sources
crossref bibtex:phds-export.bib openalex

Cite