NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trickle-Down Consumption

Marianne Bertrand, Adair Morse

NBER Working Paper No. 18883
Issued in March 2013
NBER Program(s):   EFG   ME   POL

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.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this paper also downloaded these:
Aguiar and Bils w16807 Has Consumption Inequality Mirrored Income Inequality?
Costinot and Rodriguez-Clare w18896 Trade Theory with Numbers: Quantifying the Consequences of Globalization
Kleven, Landais, Saez, and Schultz w18885 Migration and Wage Effects of Taxing Top Earners: Evidence from the Foreigners' Tax Scheme in Denmark
Bassetto and Phelan w18864 Speculative Runs on Interest Rate Pegs
Artiga Gonzalez, Schmid, and Yermack w18886 Smokescreen: How Managers Behave When They Have Something To Hide
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us