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

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. All rights reserved. Terms of use: Documents in ISSN 1725-2806 (online) EU Catalogue NoQB-AR-14-022-EN-N (online)Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the authors. The HFCN collects household-level data on households' finances and consumption in the euro area through a harmonised survey. The HFCN aims at studying in depth the micro-level structural information on euro area households' assets and liabilities. The objectives of the network are:1) understanding economic behaviour of individual households, developments in aggregate variables and the interactions between the two;2) evaluating the impact of shocks, policies and institutional changes on household portfolios and other variables;3) understanding the implications of heterogeneity for aggregate variables; 4) estimating choices of different households and their reaction to economic shocks; 5) building and calibrating realistic economic models incorporating heterogeneous agents; 6) gaining insights into issues such as monetary policy transmission and financial stability.The refereeing process of this paper has been co-ordinated by a team composed of Gabriel Fagan (ECB), Pirmin Fessler (Oesterreichische Nationalbank), Michalis Haliassos (Goethe University Frankfurt), Tullio Jappelli (University of Naples Federico II), Sébastien Pérez Duarte (ECB), Jiri Slacalek (ECB), Federica Teppa (De Nederlandsche Bank), Peter Tufano (Oxford University) and Philip Vermeulen (ECB).The paper is released in order to make the results of HFCN research generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the author's own and do not necessarily reflect those of the ESCB. AcknowledgementsThis paper uses data from the Eurosystem Household Finance and Consumption Survey. We thank participants in the European Central Bank Conference on Household Finance and Consumption for helpful comments. The views presented in this paper are those of the authors, and should not be attributed to the European Central Bank or the Japanese Ministry of Finance. Christopher D. CarrollJohns Hopkins University; e-mail: ccarroll@jhu.edu Jiri SlacalekEuropean Central Bank; e-mail: jiri.slacalek@ecb.europa.eu Kiichi TokuokaMinistry of Finance, Tokyo, Japan; e-mail: kiichi.tokuoka@mof...

Fiscal Consolidation Programs and Income Inequality

“…Relatedly Carroll et al (2014) measure marginal propensities to consume for a large panel of European countries, and then calibrate a model for each country using net wealth and liquid wealth. The authors find that the higher the proportion of financially constrained agents in an economy, the higher the consumption multiplier.…”

Monetary Policy and Inequality

“…Lower interest rates tend to reduce income inequality in Canada, the Netherlands 2 and the United States on net, while increase it in the remaining countries. The resulting consumption effects are derived from the decile-specific marginal propensity to consume (MPC) as estimated by Carroll et al (2014a and2014b) (Table A2 in Annex).…”

“…Carroll et al (2014a and2014b) estimate MPCs using a calibrated buffer-stock model of consumption which models wealth as a function of permanent income. They are derived as response to a one-off "stimulus cheque", in the model where a transitory income shock and a permanent wealth shock are equivalent.…”

“…The impact of the net wealth increase on consumption is calculated using marginal MPC by net wealth deciles estimated by Carroll et al (2014aCarroll et al ( , 2014b (Table A3 in Annex; Box 2). Although the MPC is likely to vary depending on which asset increases in value (Box 3), it is assumed that it is the same for all asset types as estimates of the MPC broken down by both asset classes and deciles are unavailable.…”

Household's Balance Sheets and the Effect of Fiscal Policy

“…Carroll, Slacalek and Tokuoka (2014) and Carroll et al (2017) set up a model with heterogeneity in the rate of time preference to show that matching the wealth distribution is key to obtaining a realistic distribution of the marginal propensity to consume. In and Kaplan, Violante and Weidner (2014) households can store wealth in liquid or illiquid assets and hand-to-mouth behavior emerges endogenously, both in poor households and wealthy households with illiquid assets.…”