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The Wealthy Hand-to-Mouth

Author

Listed:
  • Gianluca Violante

    (NYU)

  • Greg Kaplan

    (Princeton University)

  • Justin Weidner

Abstract

The wealthy hand-to-mouth are households who hold little or no liquid wealth (e.g. cash, checking, and saving accounts), despite owning sizable amounts of illiquid assets (i.e., assets that carry a transaction cost, such as housing, large durables, or retirement accounts). This portfolio configuration implies that these households have large marginal propensities to consume out of small income changes –a key determinant of the macroeconomic effects of fiscal policy. The wealthy hand-to-mouth, therefore, behave in many respects like households with little or no net worth, yet they escape standard definitions (and empirical measurements) of hand-to-mouth agents based on net worth. We use survey data on household portfolios for the U.S., Canada, Australia, the U.K., Germany, France, Italy, and Spain to document the share of such households across countries, their demographic characteristics, the composition of their balance sheet, and the persistence of hand-to-mouth status over the life cycle. Finally, we discuss the implications of this group of consumers for macroeconomic modelling and policy analysis.

Suggested Citation

  • Gianluca Violante & Greg Kaplan & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," 2014 Meeting Papers 192, Society for Economic Dynamics.
  • Handle: RePEc:red:sed014:192
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    References listed on IDEAS

    as
    1. Mark Wooden & Simon Freidin & Nicole Watson, 2002. "The Household, Income and Labour Dynamics in Australia (HILDA)Survey: Wave 1," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 35(3), pages 339-348, September.
    2. Jonathan Huntley & Valentina Michelangeli, 2014. "Can Tax Rebates Stimulate Consumption Spending in a Life-Cycle Model?," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(1), pages 162-189, January.
    3. Sydney C. Ludvigson & Alexander Michaelides, 2001. "Does Buffer-Stock Saving Explain the Smoothness and Excess Sensitivity of Consumption?," American Economic Review, American Economic Association, vol. 91(3), pages 631-647, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    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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