Working Paper: NBER ID: w30900
Authors: Adrien Auclert; Matthew Rognlie; Ludwig Straub
Abstract: We provide a simple framework connecting the distribution of excess savings across households 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: Excess Savings; Aggregate Demand; Wealth Inequality; Fiscal Transfers
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) |
| higher MPCs (E49) | deplete excess savings faster (E21) |
| deplete excess savings faster (E21) | increase incomes of other households (D19) |
| increase incomes of other households (D19) | increase their excess savings (D14) |
| trickling up of excess savings (E21) | increase wealth inequality (D31) |
| tight monetary policy (E52) | speed up trickling up process (F16) |