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

24 Pages Posted: 15 Mar 2014

See all articles by Christopher D. Carroll

Christopher D. Carroll

Johns Hopkins University - Department of Economics; National Bureau of Economic Research (NBER)

Jiri Slacalek

European Central Bank (ECB)

Kiichi Tokuoka

Ministry of Finance - Japan

Date Written: February 18, 2014

Abstract

Using new micro data on household wealth from fifteen European countries, the Household Finance and Consumption Survey, we first document the substantial cross-country variation in how various measures of wealth are distributed across individual households. Through the lens of a standard, realistically calibrated model of buffer-stock saving with transitory and permanent income shocks we then study how cross-country differences in the wealth distribution and household income dynamics affect the marginal propensity to consume out of transitory shocks (MPC). We find that the aggregate consumption response ranges between 0.1 and 0.4 and is stronger (i) in economies with large wealth inequality, where a larger proportion of households has little wealth, (ii) under larger transitory income shocks and (iii) when we consider households only using liquid assets (rather than net wealth) to smooth consumption.

Keywords: MPC, wealth inequality, consumption dynamics, liquid assets, cross-country comparisons

JEL Classification: D12, D31, D91, E21

Suggested Citation

Carroll, Christopher D. and Slacalek, Jiri and Tokuoka, Kiichi, The Distribution of Wealth and the MPC: Implications of New European Data (February 18, 2014). ECB Working Paper No. 1648, Available at SSRN: https://ssrn.com/abstract=2397786

Christopher D. Carroll (Contact Author)

Johns Hopkins University - Department of Economics ( email )

3400 Charles Street
Baltimore, MD 21218-2685
United States
410-516-7602 (Phone)
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jiri Slacalek

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Kiichi Tokuoka

Ministry of Finance - Japan ( email )

3-1-1 Kasumigaseki
Chiyoda-ku
Tokyo, 100-8940
Japan

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