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  3. American Economic Review
  4. May 2017
  5. Aggregate Demand and the Top 1 Percent

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Aggregate Demand and the Top 1 Percent

  • Adrien Auclert
  • Matthew Rognlie
American Economic Review
vol. 107, no. 5, May 2017
(pp. 588–92)
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Abstract

There has been a large rise in US top income inequality since the 1980s. We merge a widely studied model of the Pareto tail of labor incomes with a canonical model of consumption and savings to study the consequences of this increase for aggregate demand. Our model suggests that the rise of the top 1 percent may have led to a large increase in desired savings and can explain a 0.45pp to 0.85pp decline in long-run real interest rates. This effect arises from both a wealth effect at the top and increased precautionary savings from declines lower in the income distribution.

Citation

Auclert, Adrien, and Matthew Rognlie. 2017. "Aggregate Demand and the Top 1 Percent." American Economic Review, 107 (5): 588–92. DOI: 10.1257/aer.p20171004

Additional Materials

JEL Classification

  • D31 Personal Income, Wealth, and Their Distributions
  • D33 Factor Income Distribution
  • E21 Macroeconomics: Consumption; Saving; Wealth
  • E43 Interest Rates: Determination, Term Structure, and Effects