May 24, 2018
Johnson finds a redistribution of wealth from to 20% to bottom 80% could increase consumption rate
David Johnson and collaborators used the Panel Study of Income Dynamics to study the ways consumption, income inequality, and wealth inequality work together. “In economics, there’s this theory that people tend to smooth their consumption,” said U-M researcher and study author David Johnson. “Even if your income goes up or down, you’re going to spend at a certain rate, saving for a rainy day, and if that rainy day comes, use those funds. … The goal of our paper is to simulate how you respond to your income going up or going down.” They find that while wealthier people spend more, their consumption rate is lower than less wealthy people.
Read more in the Michigan News article, Redistribution of wealth could boost consumption rate.
Related working paper: Fisher, Johnson, Latner, et al. (2018). Estimating the marginal propensity to consume using the distributions of income, consumption, and wealth. The Washington Center for Equitable Growth.