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Spending by Bottom-80% U.S. Households Is Persistently Greater than Income. What Funds the Deficit?

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  • Roth, Steve

Abstract

This paper explores economic measures that are surprisingly hard to assemble: US household income quintiles’ annual spending relative to annual income. The total sector’s income-minus-spending surplus is heavily dominated by the top 20%. The bottom 80% runs persistent spending deficits, implying ongoing asset disaccumulation; the bottom 80%’s annual “propensity” to spend relative to income, or spending multiplier, is greater than one. This spending deficit is found to be largely explained or “funded” by two additional asset sources that are not included in income: borrowing from the financial/banks sector, and — to a far greater extent — capital gains on asset holdings.

Suggested Citation

  • Roth, Steve, 2021. "Spending by Bottom-80% U.S. Households Is Persistently Greater than Income. What Funds the Deficit?," MPRA Paper 110670, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:110670
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    File URL: https://mpra.ub.uni-muenchen.de/113564/13/MPRA_paper_113564.pdf
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    References listed on IDEAS

    as
    1. Fisher, Jonathan D. & Johnson, David S. & Smeeding, Timothy M. & Thompson, Jeffrey P., 2020. "Estimating the marginal propensity to consume using the distributions of income, consumption, and wealth," Journal of Macroeconomics, Elsevier, vol. 65(C).
    2. Roth, Steve, 2021. "Why the Flow of Funds Don’t Explain the Flow of Funds: Sectoral Balances, Balance Sheets, and the Accumulation Fallacy," MPRA Paper 109976, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    propensity; marginal; income; disposable income; personal income; capital gains; household; balance sheet; spending; saving; holding gains; borrowing; liabilities; assets; quintile; multiplier;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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