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

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  • Christopher D. Carroll
  • Jiri Slacalek
  • Kiichi Tokuoka

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.

Suggested Citation

  • Christopher D. Carroll & Jiri Slacalek & Kiichi Tokuoka, 2014. "The Distribution of Wealth and the MPC: Implications of New European Data," American Economic Review, American Economic Association, vol. 104(5), pages 107-111, May.
  • Handle: RePEc:aea:aecrev:v:104:y:2014:i:5:p:107-11
    Note: DOI: 10.1257/aer.104.5.107
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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