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The Trickling Up of Excess Savings

Author

Listed:
  • 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 marginal propensities to consume (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.

Suggested Citation

  • Adrien Auclert & Matthew Rognlie & Ludwig Straub, 2023. "The Trickling Up of Excess Savings," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 70-75, May.
    • Handle: RePEc:aea:apandp:v:113:y:2023:p:70-75
    DOI: 10.1257/pandp.20231027
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    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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