Estimating the Marginal Propensity to Consume Using the Distributions of Income, Consumption and Wealth

31 Pages Posted: 19 Apr 2019

See all articles by Jonathan Fisher

Jonathan Fisher

Stanford University - Stanford Center on Poverty & Inequality

David Johnson

University of Michigan at Ann Arbor

Timothy M. Smeeding

University of Wisconsin - Madison

Jeffrey P. Thompson

New England Public Policy Institute, Federal Reserve Bank of Boston; Federal Reserve Board of Governors

Date Written: 2019-02-01

Abstract

Recent studies of economic inequality almost always separately examine income, consumption, and wealth inequality and, hence, miss the important synergy among the three measures explicit in the life-cycle budget constraint. Using Panel Study of Income Dynamics data from 1999 through 2013, we examine whether these changes are more dramatic at higher or lower levels of wealth and find that the marginal propensity to consume is lower at higher wealth quintiles. This suggests that low-wealth households cannot smooth consumption as much as other households do, which further implies that increasing wealth inequality likely reduces aggregate consumption and limits economic growth.

Keywords: marginal propensity to consume, wealth distribution, inequality

JEL Classification: D15, D30, E21

Suggested Citation

Fisher, Jonathan and Johnson, David and Smeeding, Timothy M. and Thompson, Jeffrey P., Estimating the Marginal Propensity to Consume Using the Distributions of Income, Consumption and Wealth (2019-02-01). FRB of Boston Working Paper No. 19-4. Available at SSRN: https://ssrn.com/abstract=3374467

Jonathan Fisher (Contact Author)

Stanford University - Stanford Center on Poverty & Inequality ( email )

450 Serra Mall, Building 80
Stanford, CA 94305-7208
United States

David Johnson

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Timothy M. Smeeding

University of Wisconsin - Madison ( email )

1180 Observatory Drive
Madison, WI 53706
United States
608-890-1317 (Phone)
608-265-3119 (Fax)

HOME PAGE: http://www.lafollette.wisc.edu/facultystaff/smeeding-timothy.html

Jeffrey P. Thompson

New England Public Policy Institute, Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Federal Reserve Board of Governors ( email )

Washington, DC 20551
United States

HOME PAGE: http://https://www.federalreserve.gov/econres/jeffrey-p-thompson.htm

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