Working Paper: CEPR ID: DP17872
Authors: Adrien Auclert; Matthew Rognlie; Ludwig Straub
Abstract: We provide a simple framework connecting the distribution of excess savings across house- holds to the dynamics of aggregate demand. Deficit-financed fiscal transfers generate excess savings. The poorest households with the highest MPCs spend down their excess savings the fastest, increasing other households’ incomes and their excess savings. This leads to a long- lasting increase in aggregate demand until, ultimately, excess savings have “trickled up” to the richest savers with the lowest MPCs, raising wealth inequality.
Keywords: distribution
JEL Codes: E21; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| deficit-financed fiscal transfers (H69) | excess savings (E21) |
| excess savings (E21) | incomes of other households (D19) |
| incomes of other households (D19) | excess savings of other households (D14) |
| excess savings (E21) | aggregate demand (E00) |
| excess savings trickle up to wealthier households (E21) | wealth inequality (D31) |
| initial distribution of savings (D14) | long-term wealth distribution (D30) |
| MPCs of households (D19) | depletion of excess savings (E21) |