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Heterogeneous Consumers and Fiscal Policy Shocks

  • Emily Anderson
  • Atsushi Inoue
  • Barbara Rossi

    (ICREA, Duke, UPF, CREI)

This paper studies stylized empirical facts regarding the effects of unexpected changes in aggregate macroeconomic policies on consumers that are allowed to differ depending on their individual characteristics. In particular, we focus on fiscal shocks due to their important effects on consumers' welfare. We use data from the Consumption Expenditure Survey (CEX) to estimate impulse responses as well as multipliers for government spending and tax policy shocks. The main empirical finding of this paper is that unexpected fiscal shocks have substantially different effects on consumers depending on their age, income levels, and education. In particular, the wealthiest individuals tend to behave according to the predictions of standard RBC models, whereas the poorest individuals tend to behave according to standard IS-LM (non-Ricardian) models, due to credit constraints. Furthermore, government spending policy shocks tend to decrease consumption inequality, whereas tax policy shocks most negatively affect the lives of the poor, more so than the rich, thus increasing consumption inequality.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 261.

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Date of creation: 2012
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Handle: RePEc:red:sed012:261
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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