Working Paper: CEPR ID: DP9631
Authors: Emily Anderson; Atsushi Inoue; Barbara Rossi
Abstract: This paper studies stylized empirical facts regarding the effects of unexpected changes in aggregate macroeconomic fiscal policies on consumers that are allowed to differ depending on their individual characteristics. We use data from the Consumption Expenditure Survey (CEX) to estimate individual-level impulse responses as well as multipliers for government spending and tax policy shocks. The main empirical finding of this paper is that unexpected fiscal shocks have substantially different effects on consumers depending on their age, income levels, and education. In particular, the wealthiest individuals tend to behave according to the predictions of standard RBC models, whereas the poorest individuals tend to behave according to standard IS-LM (non-Ricardian) models, due to credit constraints. Furthermore, government spending policy shocks tend to decrease consumption inequality, whereas tax policy shocks most negatively affect the lives of the poor, more so than the rich, thus increasing consumption inequality.
Keywords: Fiscal policy; Government spending shocks; Heterogeneity; Tax shocks
JEL Codes: E4; E52; E21; H31; I3; D1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected government spending shocks (H69) | decrease consumption inequality (F62) |
| unexpected government spending shocks (H69) | increase consumption of the poorest individuals (D12) |
| unexpected government spending shocks (H69) | decrease consumption of the wealthiest individuals (E21) |
| unexpected tax policy shocks (H29) | harm the poorest individuals (I32) |
| unexpected tax policy shocks (H29) | decrease consumption of the youngest individuals (D15) |
| unexpected tax policy shocks (H29) | increase consumption of wealthier individuals (E21) |