Heterogeneous Consumers and Fiscal Policy Shocks

Recognition Program

Authors: Emily Anderson, Atsushi Inoue and Barbara Rossi

Journal of Money, Credit and Banking, Vol. 48, No 8, 1877-1888, December, 2016

This paper studies empirical facts regarding the effects of unexpected changes in aggregate macroeconomic fiscal policies on consumers that differ depending on individual characteristics. We use data from the Consumption Expenditure Survey to estimate individual-level responses and multipliers for government spending. We find that unexpected fiscal shocks have substantially different effects on consumers depending on their income and age levels: the wealthiest individuals tend to behave according to predictions of standard Real Business Cycle (RBC) models, whereas the poorest ones behave according to standard IS–LM (non-Ricardian) models, most likely due to credit constraints. Furthermore, government spending policy shocks tend to decrease consumption inequality.

This paper originally appeared as Barcelona GSE Working Paper 822
This paper is acknowledged by the Barcelona GSE Research Recognition Program