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Heterogeneous Consumers and Fiscal Policy Shocks

Author

Listed:
  • Emily Anderson
  • Atsushi Inoue
  • Barbara Rossi

    (ICREA, Duke, UPF, CREI)

Abstract
This paper studies stylized empirical facts regarding the effects of unexpected changes in aggregate macroeconomic policies on consumers that are allowed to differ depending on their individual characteristics. In particular, we focus on fiscal shocks due to their important effects on consumers' welfare. We use data from the Consumption Expenditure Survey (CEX) to estimate 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.

Suggested Citation

  • Emily Anderson & Atsushi Inoue & Barbara Rossi, 2012. "Heterogeneous Consumers and Fiscal Policy Shocks," 2012 Meeting Papers 261, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:261
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • D1 - Microeconomics - - Household Behavior

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