Heterogeneous Consumers and Fiscal Policy Shocks

57 Pages Posted: 9 Sep 2013

See all articles by Emily Anderson

Emily Anderson

Duke University

Atsushi Inoue

Southern Methodist University

Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Barcelona Graduate School of Economics

Date Written: September 2013

Abstract

This paper studies stylized empirical facts regarding the effects of unexpected changes in aggregate macroeconomic fiscal policies on consumers that are allowed to differ depending on their individual characteristics. We use data from the Consumption Expenditure Survey (CEX) to estimate individual-level 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.

Keywords: Fiscal policy, Government spending shocks, Heterogeneity, Tax shocks

JEL Classification: D1, E21, E4, E52, H31, I3

Suggested Citation

Anderson, Emily and Inoue, Atsushi and Rossi, Barbara, Heterogeneous Consumers and Fiscal Policy Shocks (September 2013). CEPR Discussion Paper No. DP9631, Available at SSRN: https://ssrn.com/abstract=2322726

Atsushi Inoue

Southern Methodist University ( email )

Dallas, TX 75275
United States

Barbara Rossi

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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