Heterogeneous Consumers and Fiscal Policy Shocks

Emily Anderson · Atsushi Inoue · Barbara Rossi

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Monetary Policy and Economic Impact Fiscal Policies and Political Economy Fiscal Policy and Economic Growth

Abstract

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.

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References

1998Income and Wealth Heterogeneity in the Macroeconomy 2007Understanding the Effects of Government Spending on Consumption 2012Measuring the Output Responses to Fiscal Policy 2011Identifying Government Spending Shocks: It's all in the Timing*1985Panel data from time series of cross-sections 2010How Big (Small?) are Fiscal Multipliers?1998Costly capital reallocation and the effects of government spending 2006Household Expenditure and the Income Tax Rebates of 2001

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