Working Paper: CEPR ID: DP15934
Authors: Tobias Broer; Alexandre Kohlhas; Kurt Mitman; Kathrin Schlafmann
Abstract: We document systematic differences in macroeconomic expectations across U.S. households and rationalize our findings with a theory of information choice. We embed this theory into an incomplete-markets model with aggregate risk. Our model is quantitatively consistent with the pattern of expectation heterogeneity in the data. Relative to a full-information counterpart, our model implies substantially increased macroeconomic volatility and inequality. We show through the example of a wealth tax that neglecting the information channel leads to erroneous conclusions about the effects of policies. While in the model without information choice a wealth tax reduces wealth inequality, in our framework it reduces information acquired in the economy, leading to increased volatility and higher wealth inequality in equilibrium.
Keywords: heterogenous information; unemployment; incomplete markets; precautionary savings
JEL Codes: D84; E21; E27; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Wealth Tax (H24) | Information Acquisition (D83) |
| Information Acquisition (D83) | Wealth Inequality (D31) |
| Wealth Tax (H24) | Macroeconomic Volatility (E39) |
| Information Acquisition (D83) | Household Savings Behavior (D14) |
| Household Savings Behavior (D14) | Aggregate Dynamics (E10) |
| Differences in Wealth and Employment Status (D31) | Differences in Information Acquisition (D83) |
| Differences in Information Acquisition (D83) | Wealth and Income Inequality (D31) |
| Heterogeneous Information Choices (D89) | Macroeconomic Volatility (E39) |
| Uninformed Households (D19) | Macroeconomic Volatility (E39) |
| Wealth Tax (H24) | Inequality (D63) |
| Full Information Case (D89) | Inequality (D63) |