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Monday, March 18, 2013

Trickle-Down Consumption

Robert Frank, who has been arguing for effects, will like the results in this paper from the NBER:

Trickle-Down Consumption, by Marianne Bertrand and Adair Morse, NBER Working Paper No. 18883 Issued in March 2013 [open link]: Have rising income and consumption at the top of income distribution since the early 1980s induced households in the lower tiers of the distribution to consume a larger share of their income? Using state-year variation in income level and consumption in the top first quintile or decile of the income distribution, we find evidence for such “trickle-down consumption.” The magnitude of effect suggests that middle income households would have saved between 2.6 and 3.2 percent more by the mid-2000s had incomes at the top grown at the same rate as median income. Additional tests argue against permanent income, upwardly-biased expectations of future income, home equity effects and upward price pressures as the sole explanations for this finding. Instead, we show that middle income households’ consumption of more income elastic and more visible goods and services appear particularly responsive to top income levels, consistent with supply-driven demand and status-driven explanations for our primary finding. Non-rich households exposed to higher top income levels self-report more financial duress; moreover, higher top income levels are predictive of more personal bankruptcy filings. Finally, focusing on housing credit legislation, we suggest that the political process may have internalized and facilitated such trickle-down

Here's a nice discussion of the work from Chrystia Freeland (and why it will make Robert Frank happy): Trickle-down consumption.

    Posted by on Monday, March 18, 2013 at 10:19 AM in Academic Papers, Economics | Permalink  Comments (23)


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