Working Paper: CEPR ID: DP9954
Authors: Greg Kaplan; Giovanni L. Violante; Justin Weidner
Abstract: The wealthy hand-to-mouth are households who hold little or no liquid wealth (cash, checking, and savings accounts), despite owning sizable amounts of illiquid assets (assets that carry a transaction cost, such as housing or retirement accounts). We use survey data on household portfolios for the U.S., Canada, Australia, the U.K., Germany, France, Italy, and Spain to document the share of such households across countries, their demographic characteristics, the composition of their balance sheets, and the persistence of hand-to-mouth status over the life cycle. The portfolio configuration of the wealthy hand-to-mouth suggests that these households may have a high marginal propensity to consume out of transitory income changes, a prediction for which we find empirical support in PSID data. We explain the implications of this group of consumers for macroeconomic modeling and fiscal policy analysis.
Keywords: Consumption; Fiscal Policy; Hand-to-Mouth; Household Portfolio; Liquidity
JEL Codes: D31; D91; E21; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| WHTM households (R29) | consume all their disposable income each period (D10) |
| WHTM households (R29) | consumption responses significantly different from PHTM households (D12) |
| Existence of WHTM households (R29) | reconsideration of fiscal policy implications (E62) |
| WHTM households (R29) | high marginal propensity to consume out of transitory income changes (D11) |
| WHTM households respond more strongly to transitory income shocks (H31) | consumption responses (D12) |