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The Wealth Distribution and the MPC: Implications of the New EU Wealth Survey Cross-Country Evidence Christopher Carroll 1 Jiri Slacalek 2 Kiichi Tokuoka 3 1 Johns Hopkins University and NBER ccarroll@jhu.edu 2 European Central Bank

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The Wealth Distribution and the MPC: Implications of the New EU Wealth Survey Cross-Country Evidence

Christopher Carroll1 Jiri Slacalek2 Kiichi Tokuoka3

1Johns Hopkins University and NBER

ccarroll@jhu.edu

2European Central Bank

jiri.slacalek@ecb.int

3MoF, Japan

kiichi.tokuoka@mof.go.jp

September 2013

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References

Motivation

Wealth inequality: substantial and varying across countries

(a) Lorenz Curves for Income/Net Wealth,

US/Euro Area

(b) Ginis for Net Wealth

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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References

How Should Differences in Wealth/Income Relate to the MPC? To-Do List

Simulate a standard consumption/saving model

(with permanent/transitory income a la Carroll, Slacalek, and Tokuoka (2013))

Match model to each country’s wealth distribution and income dynamics

Back out implications for marginal propensity to consume, MPC

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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References

Findings—Heterogeneity Matters!

Model Implications

1 Important to match wealth distribution 2 High MPC out of transitory income shocks

Particularly high MPC when matching liquid assets High MPC for low-wealth/low-income/unemployed households Wealth inequality increases economy’s MPC ⇒ MPC in US = 0.2–0.6 > MPC in Europe = 0.1–0.4 MPC higher under larger transitory income shocks

3 In line with empirical evidence on MPC

but in stark contrast w/ repr-agent models (MPC ∼ 0.02–0.04)

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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References

Wealth Distribution and Concavity of Consumption Function

Consumptionquarterly permanent income ratio left scale

  • W

Histogram: empiricalSCF1998 density of W right scale

  • 5

10 15 20 0.0 0.5 1.0 1.5 0. 0.05 0.1 0.15 0.2

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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References

The Model: Carroll, Slacalek, and Tokuoka (2013)

Key Ingredients

Idiosyncratic income uncertainty Permanent and transitory income shocks

Permanent shocks boost wealth heterogeneity Transitory shocks increase concavity of C function

‘Blanchard’ (1985) eternal youth Modest heterogeneity in impatience (to capture wealth distribution)

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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References

Household Problem

v(mt) = max

{ct}

u(ct) + β DEt

  • ψ1−ρ

t+1v(mt+1)

  • s.t.

at = mt − ct at ≥ kt+1 = at/( Dψt+1) mt+1 = ( + r)kt+1 + ξt+1 r = αa(K K K/¯ ℓL L L)α−1 Variables normalized by permanent labor income (ptW)

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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References

Both Ex Post and (A Bit of) Ex Ante Heterogeneity

‘β-Dist’ Model—Heterogenous Impatience Assume uniformly distributed β across households Estimate the band [` β − ∇, ` β + ∇] by minimizing distance between model (w) and data (ω) net worth held by the top 20, 40, 60, 80% min

{` β,∇}

  • i=20,40,60,80

(wi − ωi)2, s.t. aggregate net worth–output ratio matches the steady-state value from the perfect foresight model Country-by-country estimation

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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References

Income Dynamics:

‘Standard’ Process with Permanent and Transitory Component ‘Friedman/Buffer Stock’ Income Process

Large literature on US data estimating process: y y yt+1 = pt+1ξt+1 pt+1 = ptψt+1 pt = permanent income ξt = transitory income ψt+1 = permanent shock

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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References

Income Parameters: US Estimates

σ2

ψ ≈ 0.01+, σ2 ξ ≈ 0.01+

❚❛❜❧❡ ✶ ❊st✐♠❛t❡s ♦❢ ❆♥♥✉❛❧ ❱❛r✐❛♥❝❡s ♦❢ ▲♦❣ ■♥❝♦♠❡✱ ❊❛r♥✐♥❣s ❛♥❞ ❲❛❣❡ ❙❤♦❝❦s P❡r♠❛♥❡♥t ❚r❛♥s✐t♦r② ❆✉t❤♦rs σ2

ψ

σ2

ξ

■♥❞✐✈✐❞✉❛❧ ❞❛t❛ ▼❛❈✉r❞② ✭✶✾✽✷✮‡ ✵✳✵✶✸ ✵✳✵✸✶ ❚♦♣❡❧ ✭✶✾✾✶✮ ✵✳✵✶✸ ✵✳✵✶✼ ❚♦♣❡❧ ❛♥❞ ❲❛r❞ ✭✶✾✾✷✮ ✵✳✵✶✼ ✵✳✵✶✸ ▼❡❣❤✐r ❛♥❞ P✐st❛❢❡rr✐ ✭✷✵✵✹✮⋄ ✵✳✵✸✶ ✵✳✵✸✷ ◆✐❡❧s❡♥ ❛♥❞ ❱✐ss✐♥❣✲❏♦r❣❡♥s❡♥ ✭✷✵✵✻✮¶ ✵✳✵✵✺ ✵✳✵✶✺ ❑r❡❜s✱ ❑r✐s❤♥❛✱ ❛♥❞ ▼❛❧♦♥❡② ✭✷✵✵✼✮⋆ ∼ 0.01 ∼ 0.1 ❏❡♥s❡♥ ❛♥❞ ❙❤♦r❡ ✭✷✵✵✽✮⋄ ✵✳✵✺✹ ✵✳✶✼✶

  • ✉✈❡♥❡♥ ✭✷✵✵✾✮

✵✳✵✶✺ ✵✳✵✻✶ ❍❡❛t❤❝♦t❡✱ P❡rr✐✱ ❛♥❞ ❱✐♦❧❛♥t❡ ✭✷✵✶✵✮∗ 0.01✕0.03 0.05✕0.1 ❍r②s❤❦♦ ✭✷✵✶✵✮⋄ ✵✳✵✸✽ ✵✳✶✶✽ ▲♦✇✱ ▼❡❣❤✐r✱ ❛♥❞ P✐st❛❢❡rr✐ ✭✷✵✶✵✮ ✵✳✵✶✶ ✕ ❙❛❜❡❧❤❛✉s ❛♥❞ ❙♦♥❣ ✭✷✵✶✵✮△ ✵✳✵✸ ✵✳✵✽

  • ✉✈❡♥❡♥✱ ❖③❦❛♥✱ ❛♥❞ ❙♦♥❣ ✭✷✵✶✷✮◦

∼ 0.05 ∼ 0.125 ❑❛r❛❤❛♥ ❛♥❞ ❖③❦❛♥ ✭✷✵✶✷✮• ∼ 0.013 ∼ 0.09 ❇❧✉♥❞❡❧❧✱ ●r❛❜❡r✱ ❛♥❞ ▼♦❣st❛❞ ✭✷✵✶✸✮♣ ∼ 0.015 ∼ 0.025 ❍♦✉s❡❤♦❧❞ ❞❛t❛ ❈❛rr♦❧❧ ✭✶✾✾✷✮ ✵✳✵✶✻ ✵✳✵✷✼ ❈❛rr♦❧❧ ❛♥❞ ❙❛♠✇✐❝❦ ✭✶✾✾✼✮ ✵✳✵✷✷ ✵✳✵✹✹ ❙t♦r❡s❧❡tt❡♥✱ ❚❡❧♠❡r✱ ❛♥❞ ❨❛r♦♥ ✭✷✵✵✹❛✮ ✵✳✵✶✼ ✵✳✵✻✸ ❙t♦r❡s❧❡tt❡♥✱ ❚❡❧♠❡r✱ ❛♥❞ ❨❛r♦♥ ✭✷✵✵✹❜✮ 0.008✕0.026 ✵✳✸✶✻ ❇❧✉♥❞❡❧❧✱ P✐st❛❢❡rr✐✱ ❛♥❞ Pr❡st♦♥ ✭✷✵✵✽✮⋄ 0.010✕0.030 0.029✕0.055 ❘❡✈✐❡✇ ♦❢ ❊❝♦♥♦♠✐❝ ❉②♥❛♠✐❝s ✭✷✵✶✵✮⊳ 0.02✕0.05 0.02✕0.1 ❇❧✉♥❞❡❧❧✱ ▲♦✇✱ ❛♥❞ Pr❡st♦♥ ✭✷✵✶✸✮⊲ ∼ 0.005 ❉❡❇❛❝❦❡r✱ ❍❡✐♠✱ P❛♥♦✉s✐✱ ❘❛♠♥❛t❤✱ ❛♥❞ ❱✐❞❛♥❣♦s ✭✷✵✶✸✮§ 0.007✕0.010 0.15✕0.20 ■♠♣❧✐❡❞ ❜② ❑❙✲❏❊❉❈ ✵✳✵✵ ✵✳✵✸✽

◆♦t❡s✿ ✿ ▼❛❈✉r❞② ✭✶✾✽✷✮ ❞✐❞ ♥♦t ❡①♣❧✐❝✐t❧② s❡♣❛r❛t❡ ❛♥❞ ✱ ❜✉t ✇❡ ❤❛✈❡ ❡①tr❛❝t❡❞ ❛♥❞ ❛s ✐♠♣❧✐❝❛t✐♦♥s ♦❢ st❛t✐st✐❝s t❤❛t ❤✐s ♣❛♣❡r r❡♣♦rts✳ ❋✐rst✱ ✇❡ ❝❛❧❝✉❧❛t❡ ❛♥❞ ✉s✐♥❣ ❤✐s ❡st✐♠❛t❡ ✭✇❡ s❡t ✮✳ ❚❤❡♥✱ ❢♦❧❧♦✇✐♥❣ ❈❛rr♦❧❧ ❛♥❞ ❙❛♠✇✐❝❦ ✭✶✾✾✼✮ ✇❡ ♦❜t❛✐♥ t❤❡ ✈❛❧✉❡s ♦❢ ❛♥❞ ✇❤✐❝❤ ❝❛♥ ♠❛t❝❤ t❤❡s❡ st❛t✐st✐❝s✱ ❛ss✉♠✐♥❣ t❤❛t t❤❡ ✐♥❝♦♠❡ ♣r♦❝❡ss ✐s ❛♥❞ ✭✐✳❡✳✱ ✇❡ s♦❧✈❡ ❛♥❞ ✮✳ ✿ ▼❡❣❤✐r ❛♥❞ P✐st❛❢❡rr✐ ✭✷✵✵✹✮✱ ❏❡♥s❡♥ ❛♥❞ ❙❤♦r❡ ✭✷✵✵✽✮✱ ❍r②s❤❦♦ ✭✷✵✶✵✮✱ ❛♥❞ ❇❧✉♥❞❡❧❧✱ P✐st❛❢❡rr✐✱ ❛♥❞ Pr❡st♦♥ ✭✷✵✵✽✮ ❛ss✉♠❡ t❤❛t t❤❡ tr❛♥s✐t♦r② ❝♦♠♣♦♥❡♥t ✐s s❡r✐❛❧❧② ❝♦rr❡❧❛t❡❞ ✭❛♥ ▼❆ ♣r♦❝❡ss✮✱ ❛♥❞ r❡♣♦rt t❤❡ ✈❛r✐❛♥❝❡ ♦❢ ❛ s✉❜❡❧❡♠❡♥t ♦❢ t❤❡ tr❛♥s✐t♦r② ❝♦♠♣♦♥❡♥t✳ ❋♦r ❡①❛♠♣❧❡✱ ▼❡❣❤✐r ❛♥❞ P✐st❛❢❡rr✐ ✭✷✵✵✹✮ ❛♥❞ ❇❧✉♥❞❡❧❧✱ P✐st❛❢❡rr✐✱ ❛♥❞ Pr❡st♦♥ ✭✷✵✵✽✮ ❛ss✉♠❡ ❛♥ ▼❆✭✶✮ ♣r♦❝❡ss ❛♥❞ ♦❜t❛✐♥ ❡st✐♠❛t❡s ❂ ❛♥❞ ✕ ✱ r❡s♣❡❝t✐✈❡❧②✳ ❢♦r t❤❡s❡ ❢♦✉r ❛rt✐❝❧❡s r❡♣♦rt❡❞ ✐♥ t❤✐s t❛❜❧❡ ❛r❡ ❝❛❧❝✉❧❛t❡❞ ❜② ✉s✐♥❣ t❤❡✐r ❡st✐♠❛t❡s✳ ❚❤❡ t❛❜❧❡ ❞♦❡s ♥♦t ✐♥❝❧✉❞❡ ▼♦✣tt ❛♥❞ ●♦tts❝❤❛❧❦ ✭✷✵✶✶✮ ❜❡❝❛✉s❡ t❤❡✐r ✐♥❝♦♠❡ ♣r♦❝❡ss ❞♦❡s ♥♦t ✐♥❝♦r♣♦r❛t❡ t❤❡ ▼❆✭✶✮ ❝♦♠♣♦♥❡♥t❀ s❡❡ ❆♣♣❡♥❞✐① ❇ ❢♦r ♦✉r ❡st✐♠❛t❡s ♦❢ t❤❡ ▼♦✣tt ❛♥❞ ●♦tts❝❤❛❧❦ ♣r♦❝❡ss✳ ✿ ❆❞♠✐♥✐str❛t✐✈❡ ❞❛t❛ ❢♦r ❉❡♥♠❛r❦✳ ✿ ❉❛t❛ ❢♦r ▼❡①✐❝♦✱ ❑r❡❜s✱ ❑r✐s❤♥❛✱ ❛♥❞ ▼❛❧♦♥❡② ✭✷✵✵✼✮✱ ❚❛❜❧❡ ■■✳ ✿ ❍❡❛t❤❝♦t❡✱ P❡rr✐✱ ❛♥❞ ❱✐♦❧❛♥t❡ ✭✷✵✶✵✮✱ ❋✐❣✉r❡ ✶✽✳ ✿ ❙❛❜❡❧❤❛✉s ❛♥❞ ❙♦♥❣ ✭✷✵✶✵✮✱ ✐♠♣❧✐❡❞ ❜② ❋✐❣✉r❡ ✹✳ ✿ ❋✐❣✉r❡ ✺ ♦❢

  • ✉✈❡♥❡♥✱ ❖③❦❛♥✱ ❛♥❞ ❙♦♥❣ ✭✷✵✶✷✮ ❞✐s♣❧❛②s t❤❡ ❡✈♦❧✉t✐♦♥ ♦✈❡r t✐♠❡ ♦❢ t❤❡ st❛♥❞❛r❞ ❞❡✈✐❛t✐♦♥ ♦❢ t❤❡ ✶✲②❡❛r ❛♥❞ ✺✲②❡❛r

❛❤❡❛❞ ❡❛r♥✐♥❣s ❣r♦✇t❤✱ ❢r♦♠ ✇❤✐❝❤ ✇❡ ❜❛❝❦ ♦✉t t❤❡ ❡st✐♠❛t❡s ♦❢ ❛♥❞ ✉s✐♥❣ t❤❡ ❛❜♦✈❡ ❢♦r♠✉❧❛s ♦❢ ❈❛rr♦❧❧ ❛♥❞ ❙❛♠✇✐❝❦ ✭✶✾✾✼✮✳ ✿ ❑❛r❛❤❛♥ ❛♥❞ ❖③❦❛♥ ✭✷✵✶✷✮✱ ❋✐❣✉r❡s ✷ ❛♥❞ ✸✱ ❛❣❡✲✐♥✈❛r✐❛♥t ♠♦❞❡❧✳ ✿ ❆❞♠✐♥✐str❛t✐✈❡ ❞❛t❛ ❢♦r ◆♦r✇❛②✱ ❇❧✉♥❞❡❧❧✱ ●r❛❜❡r✱ ❛♥❞ ▼♦❣st❛❞ ✭✷✵✶✸✮✱ ❋✐❣✉r❡s ✼ ❛♥❞ ✽✳ ✿ ❊st✐♠❛t❡s ❜❛s❡❞ ♦♥ ❞❛t❛ ❢♦r t❤❡ ❯❙✱ ❈❛♥❛❞❛✱ t❤❡ ❯❑✱ ●❡r♠❛♥②✱ ■t❛❧②✱ ❙♣❛✐♥✱ ❙✇❡❞❡♥✱ ❘✉ss✐❛ ❛♥❞ ▼❡①✐❝♦❀ s❡❡ ❚❛❜❧❡ ✼❆✕❈✱ ♣❛❣❡s ✶✶✕✶✸ ❢♦r ❛ s✉♠♠❛r②✳ ✿ ❉❛t❛ ❢♦r t❤❡ ❯❑✱ ❇❧✉♥❞❡❧❧✱ ▲♦✇✱ ❛♥❞ Pr❡st♦♥ ✭✷✵✶✸✮✱ ❋✐❣✉r❡ ✽✳ ✿ ❉❡❇❛❝❦❡r✱ ❍❡✐♠✱ P❛♥♦✉s✐✱ ❘❛♠♥❛t❤✱ ❛♥❞ ❱✐❞❛♥❣♦s ✭✷✵✶✸✮✱ ❚❛❜❧❡ ■■■✱ ❵❘❡str✐❝t❡❞ ▼♦❞❡❧✬✳

✾ Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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References

Income Parameters: (Limited) Evidence from Europe

Estimates comparable with US

❚❛❜❧❡ ✸ ❊st✐♠❛t❡s ♦❢ ❋❇❙ ■♥❝♦♠❡ Pr♦❝❡ss ✐♥ ❊✉r♦♣❡❛♥ ❈♦✉♥tr✐❡s ❱❛r✐❛♥❝❡ ♦❢ ■♥❝♦♠❡ ❙❤♦❝❦s ❈♦✉♥tr②✴❆✉t❤♦rs P❡r♠❛♥❡♥t σ2

ψ

❚r❛♥s✐t♦r② σ2

ξ

❉❛t❛s❡t ❋r❛♥❝❡ ▲❡ ❇❧❛♥❝ ❛♥❞ ●❡♦r❣❛r❛❦♦s ✭✷✵✶✸✮⋆ 0.010 0.031 ❊❈❍P

  • ❡r♠❛♥②

▲❡ ❇❧❛♥❝ ❛♥❞ ●❡♦r❣❛r❛❦♦s ✭✷✵✶✸✮⋆ 0.006 0.030 ❊❈❍P ❋✉❝❤s✲❙❝❤✉❡♥❞❡❧♥✱ ❑r✉❡❣❡r✱ ❛♥❞ ❙♦♠♠❡r ✭✷✵✶✵✮‡ ✵✳✵✶✕✵✳✵✾✻ ✵✳✵✹✕✵✳✶✾

  • ❙❖❊P

■t❛❧② ▲❡ ❇❧❛♥❝ ❛♥❞ ●❡♦r❣❛r❛❦♦s ✭✷✵✶✸✮⋆ 0.007 0.105 ❊❈❍P ❏❛♣♣❡❧❧✐ ❛♥❞ P✐st❛❢❡rr✐ ✭✷✵✶✵✮‡ 0.02 0.075 ❙❍■❲ ❙♣❛✐♥ ▲❡ ❇❧❛♥❝ ❛♥❞ ●❡♦r❣❛r❛❦♦s ✭✷✵✶✸✮⋆ 0.001 0.113 ❊❈❍P ❆❧❜❛rr❛♥✱ ❈❛rr❛s❝♦✱ ❛♥❞ ▼❛rt✐♥❡③✲●r❛♥❛❞♦ ✭✷✵✵✾✮⋄ ✵✳✵✶✺✕✵✳✶✺✼ ✵✳✵✸✷✕✵✳✶✻✷ ❊❈P❋✴❊❈❍P P✐❥♦❛♥✲▼❛s ❛♥❞ ❙❛♥❝❤❡③✲▼❛r❝♦s ✭✷✵✶✵✮‡ ✵✳✵✶✕✵✳✶✺ ∼ 0.03 ❊❈P❋ ❯♥✐t❡❞ ❙t❛t❡s ❈❛rr♦❧❧✱ ❙❧❛❝❛❧❡❦✱ ❛♥❞ ❚♦❦✉♦❦❛ ✭✷✵✶✸❛✮ 0.010 0.010 ❈❛❧✐❜r❛t❡❞

◆♦t❡s✿ ❊❈❍P✿ ❊✉r♦♣❡❛♥ ❈♦♠♠✉♥✐t② ❍♦✉s❡❤♦❧❞ P❛♥❡❧✱ ●❙❖❊P✿ ●❡r♠❛♥ ❙♦❝✐♦✕❊❝♦♥♦♠✐❝ P❛♥❡❧✱ ❙❍■❲✿ ❙✉r✈❡② ♦❢ ❍♦✉s❡❤♦❧❞ ■♥❝♦♠❡ ❛♥❞ ❲❡❛❧t❤✱ ❊❈P❋✿ ❊♥❝✉❡st❛ ❈♦♥t✐♥✉❛ ❞❡ Pr❡s✉♣✉❡st♦s ❋❛♠✐❧✐❛r❡s❀ ✿ ❙❡❡ ❚❛❜❧❡ ✺ ✐♥ ▲❡ ❇❧❛♥❝ ❛♥❞ ●❡♦r❣❛r❛❦♦s ✭✷✵✶✸✮✱ ✿ ❙❡❡ ❚❛❜❧❡ ✼❆✕❈ ✐♥ ❘❡✈✐❡✇ ♦❢ ❊❝♦♥♦♠✐❝ ❉②♥❛♠✐❝s ✭✷✵✶✵✮✱ ♣❛❣❡s ✶✶✕✶✸✱ ✿ ❙❡❡ ❋✐❣✉r❡s ✸ ❛♥❞ ✹ ✐♥ ❆❧❜❛rr❛♥✱ ❈❛rr❛s❝♦✱ ❛♥❞ ▼❛rt✐♥❡③✲●r❛♥❛❞♦ ✭✷✵✵✾✮✱ ♣❛❣❡ ✺✵✾✳

✸ ❇✉✛❡r ❙t♦❝❦ ❙❛✈✐♥❣ ▼♦❞❡❧ ✇✐t❤ ❛ ❘❡❛❧✐st✐❝ ■♥❝♦♠❡ Pr♦❝❡ss

✸✳✶ ❚❤❡ ▼♦❞❡❧ ✸✳✷ ❈❛❧✐❜r❛t✐♦♥ ✸✳✸ ❈❛❧✐❜r❛t✐♦♥ ♦❢ ■♥❝♦♠❡ ❆❝r♦ss ❈♦✉♥tr✐❡s

❚❛❜❧❡ ✸ s✉♠♠❛r✐③❡s ❡♠♣✐r✐❝❛❧ ❡✈✐❞❡♥❝❡ ♦♥ t❤❡ ❋❇❙ ✐♥❝♦♠❡ ❞②♥❛♠✐❝s ✐♥ ❦❡② ❊✉r♦♣❡❛♥ ❝♦✉♥tr✐❡s✳ ❚❤❡ ❦❡② ❝♦♥tr✐❜✉t✐♦♥s ❛r❡ t❤❡ ❘❡✈✐❡✇ ♦❢ ❊❝♦♥♦♠✐❝ ❉②♥❛♠✐❝s ✭✷✵✶✵✮ ✈♦❧✲ ✉♠❡ ♦♥ ❵❈r♦ss✲❙❡❝t✐♦♥❛❧ ❋❛❝ts ❢♦r ▼❛❝r♦❡❝♦♥♦♠✐sts✬ ✭✇❤✐❝❤ r❡♣♦rts t❤❡ ❡✈✐❞❡♥❝❡ ❢r♦♠

  • ❡r♠❛♥②✱ ■t❛❧② ❛♥❞ ❙♣❛✐♥✮ ❛♥❞ ▲❡ ❇❧❛♥❝ ❛♥❞ ●❡♦r❣❛r❛❦♦s ✭✷✵✶✸✮ ✭❡st✐♠❛t✐♥❣ ✐♥❝♦♠❡

♣r♦❝❡ss❡s ✐♥ ❋r❛♥❝❡✱ ●❡r♠❛♥②✱ ■t❛❧② ❛♥❞ ❙♣❛✐♥✮✳ ✺

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-12
SLIDE 12

References

Calibration

. . .

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-13
SLIDE 13

References

C Function and Distribution of Wealth

Consumptionquarterly permanent income ratio for least patient in ΒDist left scale

  • ΒPoint left scale
  • for most patient in ΒDist left scale

W Histogram: empirical density of W right scale

  • 5

10 15 20 0.0 0.5 1.0 1.5 0. 0.05 0.1 0.15 0.2

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-14
SLIDE 14

References

Empirical Wealth Distribution across Countries

Data: Eurosystem Household Finance and Consumption Survey . . .

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-15
SLIDE 15

References

Stylized Facts

Substantial Variation in Wealth–Income Ratios Within & Across Countries

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-16
SLIDE 16

References

Intermezzo Inequality in Net Wealth Driven by Homeownership

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-17
SLIDE 17

References

Stylized Facts Liquid Assets Concentrated Near Zero—where C Function Steep

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-18
SLIDE 18

References

Stylized Facts Liquid Assets More Concentrated at Zero—where C Function Steep

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-19
SLIDE 19

References

Gini Coefficients A Bit Higher for Liquid Assets

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-20
SLIDE 20

References

Model-Implied MPCs Matching the Distribution of Net Wealth

Aggregate MPC: 0.1–0.2 Little heterogeneity in impatience—low ∇

❚❛❜❧❡ ✹ ▼❛r❣✐♥❛❧ Pr♦♣❡♥s✐t② t♦ ❈♦♥s✉♠❡✱ ▼❛t❝❤✐♥❣ ❉✐str✐❜✉t✐♦♥ ♦❢ ◆❡t ❲❡❛❧t❤

❆❧❧ ❆❚ ❇❊ ❈❨ ❉❊ ❊❙ ❋■ ❋❘

  • ❘

■❚ ▲❯ ▼❚ ◆▲ P❚ ❙■ ❙❑ ❖✈❡r❛❧❧ ❆✈❡r❛❣❡ ✵✳✶✸ ✵✳✶✻ ✵✳✶ ✵✳✶✸ ✵✳✶✾ ✵✳✶✹ ✵✳✶✸ ✵✳✶✸ ✵✳✶ ✵✳✶✹ ✵✳✶✷ ✵✳✶ ✵✳✶✶ ✵✳✶✶ ✵✳✶ ✵✳✶ ❇② ✇❡❛❧t❤✴♣❡r♠❛♥❡♥t ✐♥❝♦♠❡ r❛t✐♦ ❚♦♣ ✶✪ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✺ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ❚♦♣ ✶✵✪ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ❚♦♣ ✷✵✪ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ❚♦♣ ✹✵✪ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✼ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✼ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ❚♦♣ ✺✵✪ ✵✳✵✼ ✵✳✵✻ ✵✳✵✻ ✵✳✵✼ ✵✳✵✼ ✵✳✵✽ ✵✳✵✼ ✵✳✵✼ ✵✳✵✼ ✵✳✵✺ ✵✳✵✼ ✵✳✵✻ ✵✳✵✻ ✵✳✵✼ ✵✳✵✼ ✵✳✵✼ ❚♦♣ ✻✵✪ ✵✳✵✼ ✵✳✵✼ ✵✳✵✼ ✵✳✵✼ ✵✳✵✽ ✵✳✵✼ ✵✳✵✼ ✵✳✵✼ ✵✳✵✻ ✵✳✵✼ ✵✳✵✼ ✵✳✵✼ ✵✳✵✼ ✵✳✵✼ ✵✳✵✻ ✵✳✵✼ ❇♦tt♦♠ ✺✵✪ ✵✳✶✾ ✵✳✷✺ ✵✳✶✹ ✵✳✶✾ ✵✳✸ ✵✳✷ ✵✳✶✾ ✵✳✶✾ ✵✳✶✸ ✵✳✷✷ ✵✳✶✼ ✵✳✶✹ ✵✳✶✻ ✵✳✶✺ ✵✳✶✸ ✵✳✶✸ ❇② ✐♥❝♦♠❡ ❚♦♣ ✶✪ ✵✳✵✾ ✵✳✶✸ ✵✳✵✼ ✵✳✵✾ ✵✳✶✸ ✵✳✵✽ ✵✳✵✾ ✵✳✵✾ ✵✳✵✼ ✵✳✵✽ ✵✳✵✾ ✵✳✵✼ ✵✳✵✽ ✵✳✵✽ ✵✳✵✼ ✵✳✵✼ ❚♦♣ ✶✵✪ ✵✳✶ ✵✳✶✸ ✵✳✵✼ ✵✳✶ ✵✳✶✹ ✵✳✵✾ ✵✳✶ ✵✳✶ ✵✳✵✼ ✵✳✶ ✵✳✵✾ ✵✳✵✼ ✵✳✵✽ ✵✳✵✽ ✵✳✵✼ ✵✳✵✼ ❚♦♣ ✷✵✪ ✵✳✶✶ ✵✳✶✹ ✵✳✵✽ ✵✳✶✶ ✵✳✶✺ ✵✳✵✾ ✵✳✶✶ ✵✳✶ ✵✳✵✽ ✵✳✶ ✵✳✶ ✵✳✵✽ ✵✳✵✾ ✵✳✵✾ ✵✳✵✽ ✵✳✵✽ ❚♦♣ ✹✵✪ ✵✳✶✷ ✵✳✶✺ ✵✳✶ ✵✳✶✷ ✵✳✶✻ ✵✳✶✶ ✵✳✶✷ ✵✳✶✷ ✵✳✵✾ ✵✳✶✶ ✵✳✶✶ ✵✳✶ ✵✳✶✶ ✵✳✶ ✵✳✵✾ ✵✳✵✾ ❚♦♣ ✺✵✪ ✵✳✶✸ ✵✳✶✺ ✵✳✶ ✵✳✶✸ ✵✳✶✻ ✵✳✶✷ ✵✳✶✸ ✵✳✶✷ ✵✳✶ ✵✳✶✶ ✵✳✶✷ ✵✳✶ ✵✳✶✶ ✵✳✶✶ ✵✳✶ ✵✳✶ ❚♦♣ ✻✵✪ ✵✳✶✸ ✵✳✶✻ ✵✳✶✶ ✵✳✶✸ ✵✳✶✼ ✵✳✶✷ ✵✳✶✸ ✵✳✶✸ ✵✳✶ ✵✳✶✸ ✵✳✶✷ ✵✳✶✶ ✵✳✶✷ ✵✳✶✶ ✵✳✶ ✵✳✶ ❇♦tt♦♠ ✺✵✪ ✵✳✶✸ ✵✳✶✼ ✵✳✶ ✵✳✶✸ ✵✳✷✷ ✵✳✶✻ ✵✳✶✸ ✵✳✶✹ ✵✳✶ ✵✳✶✼ ✵✳✶✷ ✵✳✶ ✵✳✶✶ ✵✳✶✶ ✵✳✶ ✵✳✶ ❇② ❡♠♣❧♦②♠❡♥t st❛t✉s ❊♠♣❧♦②❡❞ ✵✳✶✷ ✵✳✶✺ ✵✳✶ ✵✳✶✷ ✵✳✶✽ ✵✳✶✸ ✵✳✶✷ ✵✳✶✷ ✵✳✵✾ ✵✳✶✹ ✵✳✶✶ ✵✳✶ ✵✳✶ ✵✳✶ ✵✳✵✾ ✵✳✵✾ ❯♥❡♠♣❧♦②❡❞ ✵✳✷✺ ✵✳✸✸ ✵✳✷ ✵✳✷✺ ✵✳✸✻ ✵✳✷✶ ✵✳✷✺ ✵✳✷✹ ✵✳✶✾ ✵✳✷✸ ✵✳✷✸ ✵✳✷ ✵✳✷✷ ✵✳✷✶ ✵✳✶✾ ✵✳✶✽ ❚✐♠❡ ♣r❡❢❡r❡♥❝❡ ♣❛r❛♠❡t❡rs‡ ` β ✵✳✾✽✾ ✵✳✾✽✽ ✵✳✾✾ ✵✳✾✽✾ ✵✳✾✽✽ ✵✳✾✽✾ ✵✳✾✽✾ ✵✳✾✽✾ ✵✳✾✾ ✵✳✾✽✾ ✵✳✾✽✾ ✵✳✾✾ ✵✳✾✾ ✵✳✾✾ ✵✳✾✾ ✵✳✾✾ ∇ ✵✳✵✵✸ ✵✳✵✵✺ ✵✳✵✵✷ ✵✳✵✵✸ ✵✳✵✵✺ ✵✳✵✵✷ ✵✳✵✵✸ ✵✳✵✵✸ ✵✳✵✵✶ ✵✳✵✵✸ ✵✳✵✵✸ ✵✳✵✵✷ ✵✳✵✵✷ ✵✳✵✵✷ ✵✳✵✵✶ ✵✳ ◆♦t❡s✿ ❆✈❡r❛❣❡ ✭❛❣❣r❡❣❛t❡✮ ♣r♦♣❡♥s✐t✐❡s ✐♥ ❛♥♥✉❛❧ t❡r♠s✳ ❆♥♥✉❛❧ ▼P❈ ✐s ❝❛❧❝✉❧❛t❡❞ ❜② q✉❛rt❡r❧② ▼P❈ ✳ ✿ ❉✐s❝♦✉♥t ❢❛❝t♦rs ❛r❡ ✉♥✐❢♦r♠❧② ❞✐str✐❜✉t❡❞ ♦✈❡r t❤❡ ✐♥t❡r✈❛❧ ✳

✶✵ Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-21
SLIDE 21

References

Model-Implied MPCs Matching the Distribution of Liquid Assets

Aggregate MPC: 0.2–0.4 More impatient households (than for net wealth)

❚❛❜❧❡ ✺ ❆✈❡r❛❣❡ ✭❆❣❣r❡❣❛t❡✮ ▼❛r❣✐♥❛❧ Pr♦♣❡♥s✐t② t♦ ❈♦♥s✉♠❡ ✐♥ ❆♥♥✉❛❧ ❚❡r♠s ✭♠❛t❝❤✐♥❣ ❞✐str✐❜✉t✐♦♥ ♦❢ ❧✐q✉✐❞ ✜♥❛♥❝✐❛❧ ❛♥❞ r❡t✐r❡♠❡♥t ❛ss❡ts✮

❆❧❧ ❆❚ ❇❊ ❈❨ ❉❊ ❊❙ ❋■ ❋❘

  • ❘

■❚ ▲❯ ▼❚ ◆▲ P❚ ❙■ ❙❑ ❖✈❡r❛❧❧ ❆✈❡r❛❣❡ ✵✳✷✼ ✵✳✷✺ ✵✳✷✼ ✵✳✷✺ ✵✳✷✹ ✵✳✹✺ ✵✳✷✽ ✵✳✸✶ ✵✳✸✹ ✵✳✸✸ ✵✳✷✸ ✵✳✶✽ ✵✳✶✾ ✵✳✸✶ ✵✳✷✾ ✵✳✷✸ ❇② ✇❡❛❧t❤✴♣❡r♠❛♥❡♥t ✐♥❝♦♠❡ r❛t✐♦ ❚♦♣ ✶✪ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✸ ✵✳✶✸ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ❚♦♣ ✶✵✪ ✵✳✶✷ ✵✳✶✸ ✵✳✶✷ ✵✳✶✸ ✵✳✶✸ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✷ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✷ ✵✳✶✷ ✵✳✶✸ ❚♦♣ ✷✵✪ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✹ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ❚♦♣ ✹✵✪ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✾ ✵✳✶✹ ✵✳✶✹ ✵✳✶✹ ✵✳✶✺ ✵✳✶✸ ✵✳✶✸ ✵✳✶✸ ✵✳✶✹ ✵✳✶✹ ✵✳✶✸ ❚♦♣ ✺✵✪ ✵✳✶✺ ✵✳✶✹ ✵✳✶✺ ✵✳✶✹ ✵✳✶✸ ✵✳✷✸ ✵✳✶✹ ✵✳✶✻ ✵✳✶✻ ✵✳✶✻ ✵✳✶✹ ✵✳✶✸ ✵✳✶✹ ✵✳✶✻ ✵✳✶✹ ✵✳✶✹ ❚♦♣ ✻✵✪ ✵✳✶✺ ✵✳✶✺ ✵✳✶✺ ✵✳✶✺ ✵✳✶✺ ✵✳✷✺ ✵✳✶✻ ✵✳✶✼ ✵✳✶✾ ✵✳✶✽ ✵✳✶✹ ✵✳✶✸ ✵✳✶✹ ✵✳✶✼ ✵✳✶✻ ✵✳✶✹ ❇♦tt♦♠ ✺✵✪ ✵✳✸✽ ✵✳✸✺ ✵✳✸✽ ✵✳✸✺ ✵✳✸✹ ✵✳✻✷ ✵✳✹ ✵✳✹✹ ✵✳✹✾ ✵✳✹✼ ✵✳✸✶ ✵✳✷✸ ✵✳✷✹ ✵✳✹✹ ✵✳✹✷ ✵✳✸✶ ❇② ✐♥❝♦♠❡ ❚♦♣ ✶✪ ✵✳✷✸ ✵✳✷✶ ✵✳✷✷ ✵✳✷✶ ✵✳✶✾ ✵✳✸✶ ✵✳✷✹ ✵✳✷✺ ✵✳✷✾ ✵✳✷✸ ✵✳✶✾ ✵✳✶✺ ✵✳✶✺ ✵✳✷✻ ✵✳✷✺ ✵✳✶✾ ❚♦♣ ✶✵✪ ✵✳✷✸ ✵✳✷✶ ✵✳✷✸ ✵✳✷✶ ✵✳✶✾ ✵✳✸✷ ✵✳✷✹ ✵✳✷✺ ✵✳✷✾ ✵✳✷✹ ✵✳✶✾ ✵✳✶✺ ✵✳✶✺ ✵✳✷✻ ✵✳✷✺ ✵✳✶✾ ❚♦♣ ✷✵✪ ✵✳✷✹ ✵✳✷✷ ✵✳✷✹ ✵✳✷✷ ✵✳✷ ✵✳✸✷ ✵✳✷✺ ✵✳✷✻ ✵✳✸ ✵✳✷✹ ✵✳✷ ✵✳✶✻ ✵✳✶✼ ✵✳✷✼ ✵✳✷✻ ✵✳✷ ❚♦♣ ✹✵✪ ✵✳✷✺ ✵✳✷✹ ✵✳✷✺ ✵✳✷✹ ✵✳✷✶ ✵✳✸✻ ✵✳✷✼ ✵✳✷✼ ✵✳✸✶ ✵✳✷✼ ✵✳✷✷ ✵✳✶✽ ✵✳✶✽ ✵✳✷✾ ✵✳✷✼ ✵✳✷✷ ❚♦♣ ✺✵✪ ✵✳✷✻ ✵✳✷✹ ✵✳✷✻ ✵✳✷✹ ✵✳✷✶ ✵✳✸✽ ✵✳✷✻ ✵✳✷✽ ✵✳✸✷ ✵✳✷✽ ✵✳✷✸ ✵✳✶✽ ✵✳✶✾ ✵✳✸ ✵✳✷✼ ✵✳✷✸ ❚♦♣ ✻✵✪ ✵✳✷✻ ✵✳✷✺ ✵✳✷✻ ✵✳✷✺ ✵✳✷✸ ✵✳✸✾ ✵✳✷✽ ✵✳✷✾ ✵✳✸✷ ✵✳✷✾ ✵✳✷✸ ✵✳✶✾ ✵✳✶✾ ✵✳✸ ✵✳✷✽ ✵✳✷✸ ❇♦tt♦♠ ✺✵✪ ✵✳✷✽ ✵✳✷✻ ✵✳✷✽ ✵✳✷✻ ✵✳✷✼ ✵✳✺✶ ✵✳✸ ✵✳✸✹ ✵✳✸✻ ✵✳✸✽ ✵✳✷✸ ✵✳✶✽ ✵✳✶✾ ✵✳✸✷ ✵✳✸✶ ✵✳✷✸ ❇② ❡♠♣❧♦②♠❡♥t st❛t✉s ❊♠♣❧♦②❡❞ ✵✳✷✺ ✵✳✷✸ ✵✳✷✺ ✵✳✷✸ ✵✳✷✸ ✵✳✹✸ ✵✳✷✻ ✵✳✷✾ ✵✳✸✷ ✵✳✸✷ ✵✳✷✶ ✵✳✶✼ ✵✳✶✽ ✵✳✷✾ ✵✳✷✼ ✵✳✷✶ ❯♥❡♠♣❧♦②❡❞ ✵✳✹✼ ✵✳✹✹ ✵✳✹✼ ✵✳✹✹ ✵✳✹ ✵✳✻✸ ✵✳✺ ✵✳✺✷ ✵✳✻✶ ✵✳✹✾ ✵✳✸✾ ✵✳✷✾ ✵✳✸ ✵✳✺✺ ✵✳✺✷ ✵✳✸✽ ❚✐♠❡ ♣r❡❢❡r❡♥❝❡ ♣❛r❛♠❡t❡rs‡ ` β ✵✳✾✻✾ ✵✳✾✻✾ ✵✳✾✻✾ ✵✳✾✻✾ ✵✳✾✼ ✵✳✾✺✾ ✵✳✾✻✾ ✵✳✾✻✼ ✵✳✾✻✼ ✵✳✾✻✻ ✵✳✾✼ ✵✳✾✼✶ ✵✳✾✼✶ ✵✳✾✻✽ ✵✳✾✻✽ ✵✳✾✼ ∇ ✵✳✵✵✻ ✵✳✵✵✻ ✵✳✵✵✻ ✵✳✵✵✻ ✵✳✵✵✺ ✵✳✵✶✾ ✵✳✵✵✼ ✵✳✵✵✽ ✵✳✵✵✾ ✵✳✵✶ ✵✳✵✵✺ ✵✳✵✵✷ ✵✳✵✵✷ ✵✳✵✵✽ ✵✳✵✵✼ ✵✳✵✵✺ ◆♦t❡s✿ ❆♥♥✉❛❧ ▼P❈ ✐s ❝❛❧❝✉❧❛t❡❞ ❜② q✉❛rt❡r❧② ▼P❈ ✳ ✿ ❉✐s❝♦✉♥t ❢❛❝t♦rs ❛r❡ ✉♥✐❢♦r♠❧② ❞✐str✐❜✉t❡❞ ♦✈❡r t❤❡ ✐♥t❡r✈❛❧ ✳

✽ Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-22
SLIDE 22

References

Notes: The figure shows the range of aggregate MPCs spanned by the estimates based on the distribution of net wealth (lower bound, Table ??) and

  • f liquid assets (upper bound, Table ??).

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-23
SLIDE 23

References

Model Fits Upper Tail Surprisingly Well

Share of top 10%: model

data mostly ∼ 1, especially for net wealth

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

slide-24
SLIDE 24

References

Empirical Evidence: MPC ∼0.2–0.6 (≫ 0.02–0.04)

Mostly From US

❚❛❜❧❡ ✶ ❊♠♣✐r✐❝❛❧ ❊st✐♠❛t❡s ♦❢ t❤❡ ▼❛r❣✐♥❛❧ Pr♦♣❡♥s✐t② t♦ ❈♦♥s✉♠❡ ✭▼P❈✮ ♦✉t ♦❢ ❚r❛♥s✐t♦r② ■♥❝♦♠❡ ❈♦♥s✉♠♣t✐♦♥ ▼❡❛s✉r❡ ❆✉t❤♦rs ◆♦♥❞✉r❛❜❧❡s ❉✉r❛❜❧❡s ❚♦t❛❧ P❈❊ ❍♦r✐③♦♥⋆ ❊✈❡♥t✴❙❛♠♣❧❡ ❇❧✉♥❞❡❧❧✱ P✐st❛❢❡rr✐✱ ❛♥❞ Pr❡st♦♥ ✭✷✵✵✽✮‡ ✵✳✵✺ ❊st✐♠❛t✐♦♥ ❙❛♠♣❧❡✿ ✶✾✽✵✕✾✷ ❇r♦✇♥✐♥❣ ❛♥❞ ❈♦❧❧❛❞♦ ✭✷✵✵✶✮ ∼ 0 ❙♣❛♥✐s❤ ❊❈P❋ ❉❛t❛✱ ✶✾✽✺✕✾✺ ❈♦r♦♥❛❞♦✱ ▲✉♣t♦♥✱ ❛♥❞ ❙❤❡✐♥❡r ✭✷✵✵✺✮ ✵✳✸✻ ✶ ❨❡❛r ✷✵✵✸ ❚❛① ❈✉t ❍❛✉s♠❛♥ ✭✷✵✶✷✮ ✵✳✻✕✵✳✼✺ ✶ ❨❡❛r ✶✾✸✻ ❱❡t❡r❛♥s✬ ❇♦♥✉s ❍s✐❡❤ ✭✷✵✵✸✮‡ ∼ 0 ❈❊❳✱ ✶✾✽✵✕✷✵✵✶ ❏❛♣♣❡❧❧✐ ❛♥❞ P✐st❛❢❡rr✐ ✭✷✵✶✸✮ ✵✳✹✽ ■t❛❧②✱ ✷✵✶✵ ❏♦❤♥s♦♥✱ P❛r❦❡r✱ ❛♥❞ ❙♦✉❧❡❧❡s ✭✷✵✵✾✮ ∼ 0.25 ✸ ▼♦♥t❤s ✷✵✵✸ ❈❤✐❧❞ ❚❛① ❈r❡❞✐t ▲✉s❛r❞✐ ✭✶✾✾✻✮‡ ✵✳✷✕✵✳✺ ❊st✐♠❛t✐♦♥ ❙❛♠♣❧❡✿ ✶✾✽✵✕✽✼ P❛r❦❡r ✭✶✾✾✾✮ ✵✳✷ ✸ ▼♦♥t❤s ❊st✐♠❛t✐♦♥ ❙❛♠♣❧❡✿ ✶✾✽✵✕✾✸ P❛r❦❡r✱ ❙♦✉❧❡❧❡s✱ ❏♦❤♥s♦♥✱ ❛♥❞ ▼❝❈❧❡❧❧❛♥❞ ✭✷✵✶✶✮ ✵✳✶✷✕✵✳✸✵ ✵✳✺✵✕✵✳✾✵ ✸ ▼♦♥t❤s ✷✵✵✽ ❊❝♦♥♦♠✐❝ ❙t✐♠✉❧✉s ❙❛❤♠✱ ❙❤❛♣✐r♦✱ ❛♥❞ ❙❧❡♠r♦❞ ✭✷✵✶✵✮ ∼ 1/3 ✶ ❨❡❛r ✷✵✵✽ ❊❝♦♥♦♠✐❝ ❙t✐♠✉❧✉s ❙❤❛♣✐r♦ ❛♥❞ ❙❧❡♠r♦❞ ✭✶✾✾✺✮ s✉❜st❛♥t✐❛❧ ✶✾✾✷ ❇✉s❤ Pr♦♣♦s❛❧ ❙❤❛♣✐r♦ ❛♥❞ ❙❧❡♠r♦❞ ✭✷✵✵✾✮ ∼ 1/3 ✶ ❨❡❛r ✷✵✵✽ ❊❝♦♥♦♠✐❝ ❙t✐♠✉❧✉s ❙♦✉❧❡❧❡s ✭✷✵✵✷✮ ✵✳✻✕✵✳✾ ✶ ❨❡❛r ❚❤❡ ❘❡❛❣❛♥ ❚❛① ❈✉ts ♦❢ t❤❡ ❊❛r❧② ✶✾✽✵s

◆♦t❡s✿ ✿ ❚❤❡ ❤♦r✐③♦♥ ❢♦r ✇❤✐❝❤ ❝♦♥s✉♠♣t✐♦♥ r❡s♣♦♥s❡ ✐s ❝❛❧❝✉❧❛t❡❞ ✐s ✸ ♠♦♥t❤s ♦r ✶ ②❡❛r✳ ❚❤❡ ♣❛♣❡rs ✇❤✐❝❤ ❡st✐♠❛t❡ ❝♦♥s✉♠♣t✐♦♥ r❡s♣♦♥s❡ ♦✈❡r t❤❡ ❤♦r✐③♦♥ ♦❢ ✸ ♠♦♥t❤s t②♣✐❝❛❧❧② s✉❣❣❡st t❤❛t t❤❡ r❡s♣♦♥s❡ t❤❡r❡❛❢t❡r ✐s ♦♥❧② ♠♦❞❡st✱ s♦ t❤❛t t❤❡ ✐♠♣❧✐❡❞ ❝✉♠✉❧❛t✐✈❡ ▼P❈ ♦✈❡r t❤❡ ❢✉❧❧ ②❡❛r ✐s ♥♦t ♠✉❝❤ ❤✐❣❤❡r t❤❛♥ ♦✈❡r t❤❡ ✜rst t❤r❡❡ ♠♦♥t❤s✳ ✿ ❡❧❛st✐❝✐t②✳ ❇r♦❞❛ ❛♥❞ P❛r❦❡r ✭✷✵✶✷✮ r❡♣♦rt t❤❡ ✜✈❡✲♠♦♥t❤ ❝✉♠✉❧❛t✐✈❡ ▼P❈ ♦❢ ✵✳✵✽✸✻✕✵✳✶✼✷✹ ❢♦r t❤❡ ❝♦♥s✉♠♣t✐♦♥ ❣♦♦❞s ✐♥ t❤❡✐r ❞❛t❛s❡t✳ ❍♦✇❡✈❡r✱ t❤❡ ❍♦♠❡s❝❛♥✴◆❈P ❞❛t❛ t❤❡② ✉s❡ ♦♥❧② ❝♦✈❡rs ❛ s✉❜s❡t ♦❢ t♦t❛❧ P❈❊✱ ✐♥ ♣❛rt✐❝✉❧❛r ❣r♦❝❡r② ❛♥❞ ✐t❡♠s ❜♦✉❣❤t ✐♥ s✉♣❡r❝❡♥t❡rs ❛♥❞ ✇❛r❡❤♦✉s❡ ❝❧✉❜s✳ ❲❡ ❞♦ ♥♦t ✐♥❝❧✉❞❡ t❤❡ st✉❞✐❡s ♦❢ t❤❡ ✷✵✵✶ t❛① r❡❜❛t❡s✱ ❜❡❝❛✉s❡ ♦✉r ✐♥t❡r♣r❡t❛t✐♦♥ ♦❢ t❤❛t ❡✈❡♥t ✐s t❤❛t ✐t r❡✢❡❝t❡❞ ❛ ♣❡r♠❛♥❡♥t t❛① ❝✉t t❤❛t ✇❛s ♥♦t ♣❡r❝❡✐✈❡❞ ❜② ♠❛♥② ❤♦✉s❡❤♦❧❞s ✉♥t✐❧ t❤❡ t❛① r❡❜❛t❡ ❝❤❡❝❦s ✇❡r❡ r❡❝❡✐✈❡❞✳ ❲❤✐❧❡ s❡✈❡r❛❧ st✉❞✐❡s ❤❛✈❡ ❡①❛♠✐♥❡❞ t❤✐s ❡♣✐s♦❞❡✱ ❡✳❣✳✱ ❙❤❛♣✐r♦ ❛♥❞ ❙❧❡♠r♦❞ ✭✷✵✵✸✮✱ ❏♦❤♥s♦♥✱ P❛r❦❡r✱ ❛♥❞ ❙♦✉❧❡❧❡s ✭✷✵✵✻✮✱ ❆❣❛r✇❛❧✱ ▲✐✉✱ ❛♥❞ ❙♦✉❧❡❧❡s ✭✷✵✵✼✮ ❛♥❞ ▼✐sr❛ ❛♥❞ ❙✉r✐❝♦ ✭✷✵✶✶✮✱ ✐♥ t❤❡ ❛❜s❡♥❝❡ ♦❢ ❡✈✐❞❡♥❝❡ ❛❜♦✉t t❤❡ ❡①t❡♥t t♦ ✇❤✐❝❤ t❤❡ r❡❜❛t❡s ✇❡r❡ ♣❡r❝❡✐✈❡❞ ❛s ♥❡✇s ❛❜♦✉t ❛ ♣❡r♠❛♥❡♥t ✈❡rs✉s ❛ tr❛♥s✐t♦r② t❛① ❝✉t✱ ❛♥② ✈❛❧✉❡ ♦❢ t❤❡ ▼P❈ ❜❡t✇❡❡♥ ③❡r♦ ❛♥❞ ♦♥❡ ❝♦✉❧❞ ❜❡ ❥✉st✐✜❡❞ ❛s ❛ ♣❧❛✉s✐❜❧❡ ✐♥t❡r♣r❡t❛t✐♦♥ ♦❢ t❤❡ ✐♠♣❧✐❝❛t✐♦♥ ♦❢ ❛ r❡❛s♦♥❛❜❧❡ ✈❡rs✐♦♥ ♦❢ ❡❝♦♥♦♠✐❝ t❤❡♦r② ✭t❤❛t ❛❝❝♦✉♥ts ❢♦r ❞❡❧❛②s ✐♥ ♣❡r❝❡♣t✐♦♥ ♦❢ t❤❡ ❦✐♥❞ t❤❛t ✉♥❞♦✉❜t❡❞❧② ♦❝❝✉r✮✳

✼ Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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Quick Summary So Far

Model with modest impatience heterogeneity captures wealth distribution Essential to include low-wealth/high-MPC households in analysis (Rep Agent models can’t do it) Models that match wealth distribution boost aggregate MPC: ∼ 0.04 ր ∼ 0.1–0.4 Heterogeneity matters!

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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Wealth Inequality and MPC

Inequality implies higher MPC, especially for liquid assets

Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC:

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Wealth Inequality and MPC

Inequality matters more at lower levels of wealth—for liquid assets—where C function is highly non-linear Inequality matters less at high levels of wealth

Consumptionquarterly permanent income ratio left scale

  • W

Histogram: empiricalSCF1998 density of W right scale

  • 5

10 15 20 0.0 0.5 1.0 1.5 0. 0.05 0.1 0.15 0.2

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Differences in Income Processes

Larger transitory shocks ⇒ C function more concave & larger MPC, in particular at low wealth

❚❛❜❧❡ ✼ ❆✈❡r❛❣❡ ✭❆❣❣r❡❣❛t❡✮ ▼❛r❣✐♥❛❧ Pr♦♣❡♥s✐t② t♦ ❈♦♥s✉♠❡ ✐♥ ❆♥♥✉❛❧ ❚❡r♠s ✇✐t❤ ❆❧t❡r♥❛t✐✈❡ P❛r❛♠❡t❡r ❱❛❧✉❡s

❇❛s❡❧✐♥❡ ▲♦✇ σ2

ψ

❍✐❣❤ σ2

θ

❱❡r② ❍✐❣❤ σ2

θ

σ2

ψ = 0.01

σ2

ψ = 0.005

σ2

ψ = 0.01

σ2

ψ = 0.01

σ2

θ = 0.01

σ2

θ = 0.01

σ2

θ = 0.05

σ2

θ = 0.10

❖✈❡r❛❧❧ ❆✈❡r❛❣❡ ✵✳✶✷ ✵✳✶✷ ✵✳✶✹ ✵✳✶✼ ❇② ✇❡❛❧t❤✴♣❡r♠❛♥❡♥t ✐♥❝♦♠❡ r❛t✐♦ ❚♦♣ ✶✪ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ❚♦♣ ✶✵✪ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ❚♦♣ ✷✵✪ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ❚♦♣ ✹✵✪ ✵✳✵✻ ✵✳✵✻ ✵✳✵✻ ✵✳✵✼ ❚♦♣ ✺✵✪ ✵✳✵✼ ✵✳✵✼ ✵✳✵✺ ✵✳✵✼ ❚♦♣ ✻✵✪ ✵✳✵✼ ✵✳✵✻ ✵✳✵✼ ✵✳✵✽ ❇♦tt♦♠ ✺✵✪ ✵✳✶✼ ✵✳✶✼ ✵✳✷✷ ✵✳✷✻ ❇② ✐♥❝♦♠❡ ❚♦♣ ✶✪ ✵✳✵✾ ✵✳✵✽ ✵✳✶ ✵✳✶✶ ❚♦♣ ✶✵✪ ✵✳✵✾ ✵✳✵✾ ✵✳✶ ✵✳✶✷ ❚♦♣ ✷✵✪ ✵✳✶ ✵✳✶ ✵✳✶✶ ✵✳✶✷ ❚♦♣ ✹✵✪ ✵✳✶✶ ✵✳✶✶ ✵✳✶✷ ✵✳✶✹ ❚♦♣ ✺✵✪ ✵✳✶✷ ✵✳✶✶ ✵✳✶✷ ✵✳✶✹ ❚♦♣ ✻✵✪ ✵✳✶✷ ✵✳✶✶ ✵✳✶✸ ✵✳✶✺ ❇♦tt♦♠ ✺✵✪ ✵✳✶✷ ✵✳✶✸ ✵✳✶✻ ✵✳✷ ❇② ❡♠♣❧♦②♠❡♥t st❛t✉s ❊♠♣❧♦②❡❞ ✵✳✶✶ ✵✳✶✶ ✵✳✶✹ ✵✳✶✻ ❯♥❡♠♣❧♦②❡❞ ✵✳✷✸ ✵✳✷✹ ✵✳✷✺ ✵✳✷✼ ❚✐♠❡ ♣r❡❢❡r❡♥❝❡ ♣❛r❛♠❡t❡rs‡ ` β ✵✳✾✽✾ ✵✳✾✾ ✵✳✾✽✾ ✵✳✾✽✽ ✵✳✵✵✸ ✵✳✵✵✷ ✵✳✵✵✹ ✵✳✵✵✺ ◆♦t❡s✿ ❆♥♥✉❛❧ ▼P❈ ✐s ❝❛❧❝✉❧❛t❡❞ ❜② q✉❛rt❡r❧② ▼P❈ ✳ ✿ ❉✐s❝♦✉♥t ❢❛❝t♦rs ❛r❡ ✉♥✐❢♦r♠❧② ❞✐str✐❜✉t❡❞ ♦✈❡r t❤❡ ✐♥t❡r✈❛❧ ✳ ❚❤❡ t❛r❣❡t❡❞ ✇❡❛❧t❤ ❞✐str✐❜✉t✐♦♥ ✐s t❤❡ ❞✐str✐❜✉t✐♦♥ ♦❢ ♥❡t ✇❡❛❧t❤ ✐♥ ❛❧❧ ❝♦✉♥tr✐❡s✳

✶✶

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Summary

Take-aways Aggregate MPC for Net Wealth: 0.1–0.2 Aggregate MPC for Liquid Assets 0.2–0.4 MPC in Europe lower than in US [0.2–0.6; see Carroll, Slacalek, and Tokuoka (2013)] In Europe more equal wealth distribution ⇒ less heterogeneity in impatience than in US MPC substantially higher for low-wealth/low-income/unemployed: 0.3–0.6 [vs 0.005–0.2]

MPC

Higher for countries with more wealth inequality Higher for larger transitory income shocks Interactions between wealth inequality and income uncertainty?

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References I

Carroll, Christopher D., Jiri Slacalek, and Kiichi Tokuoka (2013): “The Distribution of Wealth and the Marginal Propensity to Consume,” mimeo, Johns Hopkins University. Castaneda, Ana, Javier Diaz-Gimenez, and Jose-Victor Rios-Rull (2003): “Accounting for the U.S. Earnings and Wealth Inequality,” Journal of Political Economy, 111(4), 818–857. Den Haan, Wouter J., Ken Judd, and Michel Julliard (2007): “Description of Model B and Exercises,” Manuscript. Carroll, Slacalek and Tokuoka The Distribution of Wealth and the MPC: