Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/195559
Authors: 
Carroll, Christopher
Slacalek, Jirka
Tokuoka, Kiichi
White, Matthew N.
Year of Publication: 
2017
Citation: 
[Journal:] Quantitative Economics [ISSN:] 1759-7331 [Volume:] 8 [Year:] 2017 [Issue:] 3 [Pages:] 977-1020
Abstract: 
In a model calibrated to match micro- and macroeconomic evidence on household income dynamics, we show that a modest degree of heterogeneity in household preferences or beliefs is sufficient to match empirical measures of wealth inequality in the United States. The heterogeneity-augmented model's predictions are consistent with microeconomic evidence that suggests that the annual marginal propensity to consume (MPC) is much larger than the roughly 0.04 im- plied by commonly used macroeconomic models (even ones including some heterogeneity). The high MPC arises because many consumers hold little wealth despite having a strong precautionary motive. Our model also plausibly predicts that the aggregate MPC can differ greatly depending on how the shock is distributed across households (depending, e.g., on their wealth, or employment status).
Subjects: 
Wealth distribution
marginal propensity to consume
heterogeneity
inequality
JEL: 
D12
D31
D91
E21
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc/4.0/
Document Type: 
Article
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