A paper by Marianne Bertrand and Adair Morse. (An earlier draft)
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.
I cannot wait to see the policy recommendation to tax high incomes. That is, take income away from people with a high marginal propensity to save and give it to government, which has a negative marginal propensity to save.
“The magnitude of effect suggests that middle income households would have saved… more… had incomes at the top grown at the same rate as median income.”
I’m curious what the causal link they suspect is for this. It is one thing to remark on an observed difference in income growth and savings rate, it is another to say that that guy’s faster income growth *caused* my lack of saving.
Trickle down *expectations* perhaps. I could believe middle earners overestimated their future wage increases and reduced current savings. That is plausibly linked with income/consumption growth at the top.
Perhaps, but that requires that I know more about the top guy’s income than I do my own, which seems unlikely.
So the argument for redistribution is the “Spirit Level” sort of thing, yes? Middle-class people see high-income people consume a bunch more stuff, they feel bad if they don’t keep up, so they stretch to keep up and save less; and if you reduced the consumption of high-income people by mass force, the loss of their savings might be outweighed by the increase in middle-income savings due to less envy-driven consumption.
It’s a horribly morally corrupt argument, but the causative chain is not so implausible, and it is less than charitable to opponents to treat their arguments as if they were only about government vs high-income-private savings.