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A Model of the Consumption Response to Fiscal Stimulus Payments

Author

Listed:
  • Gianluca Violante

    (NYU)

  • Greg Kaplan

    (University of Pennsylvania)

Abstract

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).

Suggested Citation

  • Gianluca Violante & Greg Kaplan, 2011. "A Model of the Consumption Response to Fiscal Stimulus Payments," 2011 Meeting Papers 243, Society for Economic Dynamics.
    • Handle: RePEc:red:sed011:243
    as

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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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