Full Citation

Title: The Heterogeneous Responses of Consumption between Poor and Rich to Government Spending Shocks

Citation Type: Journal Article

Publication Year: 2017

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Abstract: Government spending shocks have substantially different effects on consumers across the income distribution: consumption increases for the poor whereas it decreases for the rich in response to a rise in government expenditure. I shed light on this issue by incorporating a progressive tax scheme and productive public expenditure into a heterogeneous agent model economy with indivisible labor. The model economy is able to successfully match aggregate and disaggregate effects of government spending shocks on consumption. When the government increases its spending and accompanies it by a rise in tax progressivity, the poor are employed and increase their consumption since after‐tax wage rates increase while the rich decrease their consumption because of a fall in after‐tax wage rates.

Url: https://onlinelibrary.wiley.com/doi/full/10.1111/jmcb.12593

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Authors: MA, EUNSEONG

Periodical (Full): Journal of Money, Credit and Banking

Issue: 7

Volume: 51

Pages: 1999-2028

Data Collections: IPUMS CPS

Topics: Other, Poverty and Welfare

Countries: United States