Aggregate Demand and the Top 1 Percent

Adrien Auclert; Matthew Rognlie

doi:10.1257/aer.p20171004

Aggregate Demand and the Top 1 Percent

Adrien Auclert¹; Matthew Rognlie²

¹ Stanford University, Landau Economics Building, 579 Serra Mall, Stanford, CA 94305 (e-mail: ) · ² Princeton University, Julis Romo Rabinowitz Building, Princeton, NJ 08544 (e-mail: )

American Economic Review 2017

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.

DOI: 10.1257/aer.p20171004
Volume: 107 (5)
Pages: 588-592
Language: en
Export: BibTeX
Sources: openalex crossref