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A Model of the Consumption Response to Fiscal Stimulus Payments

Listed author(s):
  • Gianluca Violante

    (NYU)

  • Greg Kaplan

    (University of Pennsylvania)

Preliminary results show that when this model is parameterized to match a number of targets - in particular the joint cross-sectional distribution of liquid and illiquid wealth - it is able to generate responses to fiscal stimulus payments of the observed order of magnitude. The model is also consistent with two other important facts documented in the empirical literature: 1) household consumption does not respond significantly to large anticipated income changes, and 2) the estimated consumption responses to tax rebates appear to be the result of very high marginal propensities to consume for a minority of households (around 1/4).

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 243.

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Date of creation: 2011
Handle: RePEc:red:sed011:243
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1511-1560.
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  6. Jonathan A. Parker, 2011. "Consumer Spending and the Economic Stimulus Payments of 2008," 2011 Meeting Papers 254, Society for Economic Dynamics.
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  8. Telyukova, Irina A., 2012. "Household Need for Liquidity and the Credit Card Debt Puzzle," University of California at San Diego, Economics Working Paper Series qt0ww2c04z, Department of Economics, UC San Diego.
  9. Aubhik Khan & Julia K. Thomas, 2007. "Inflation and interest rates with endogenous market segmentation," Working Papers 07-1, Federal Reserve Bank of Philadelphia.
  10. Jeffrey Campbell & Zvi Hercowitz, 2012. "Liquidity Constraints of the Middle Class," 2012 Meeting Papers 98, Society for Economic Dynamics.
  11. Fatih Guvenen, 2005. "An Empirical Investigation of Labor Income Processes," Macroeconomics 0508026, EconWPA.
  12. Annamaria Lusardi & Daniel J. Schneider & Peter Tufano, 2011. "Financially Fragile Households: Evidence and Implications," NBER Working Papers 17072, National Bureau of Economic Research, Inc.
  13. Heathcote, Jonathan, 2001. "Fiscal Policy with Heterogeneous Agents and Incomplete Markets," Working Papers 01-03, Duke University, Department of Economics.
  14. Martin Browning & M. Dolores Collado, 2001. "The Response of Expenditures to Anticipated Income Changes: Panel Data Estimates," American Economic Review, American Economic Association, vol. 91(3), pages 681-692, June.
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  16. Guido Lorenzoni & Veronica Guerrieri, 2011. "Credit Crises, Precautionary Savings and the Liquidity Trap," 2011 Meeting Papers 1414, Society for Economic Dynamics.
  17. Sydney Ludvigson & Stijn Van Nieuwerburgh & Jack Favilukis, 2010. "The Macroeconomic E¤ects of Housing Wealth, Housing Finance, and Limited Risk-Sharing in General Equilibrium," 2010 Meeting Papers 733, Society for Economic Dynamics.
  18. Misra, Kanishka & Surico, Paolo, 2011. "Heterogeneous Responses and Aggregate Impact of the 2001 Income Tax Rebates," CEPR Discussion Papers 8306, C.E.P.R. Discussion Papers.
  19. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 659-684.
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  26. Chatterjee, S. & Corbae, D., 1990. "Endogenous Market Participation and the General Equelibrium Value of Money," Working Papers 90-30a, University of Iowa, Department of Economics.
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