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On the Distributional Effects of
International Tariffs
Daniel Carroll (FRB Cleveland)
Sewon Hur (FRB Cleveland)
Sogang University
June 7, 2019
The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of
Cleveland or the Federal Reserve System.
Introduction
I What are the distributional consequences of trade?
I Effect on labor markets: Autor, Dorn, Hanson, and Song
(2014)
I Low-skilled harmed more from opening to trade
I Effect on prices: Fajgelbaum and Khandelwal (2016); Carroll
and Hur (2019a)
I Poor most sensitive to tradable consumption prices
1 / 42
What we do
I Tradable goods/ services constitute a larger fraction of
expenditures for poor households (Carroll and Hur 2019a)
I Build a Ricardian trade model with
I non-homothetic preferences
I uninsurable income risk
I segmented labor markets
I distortionary labor and capital income taxes
I Study the distributional effects of tariffs
I without redistributionI with redistribution
I reduce labor income tax
I reduce capital income tax
I lump-sum transfer
2 / 42
What we find
I What are the distributional consequences of bilateral tariff
increases?
I Answer: It depends on how tariff revenue is distributed
I Without redistribution . . .I large welfare losses for everyone, but especially hurts the
poor and the skilled
I With redistribution . . .I labor income tax reduction generates a more equitable
distribution of welfare losses
I capital income tax reduction strongly favors the rich (really
hurts the poor)
I lump-sum rebating tariff revenue can produce a welfare gain
on average, but at the expense of the skilled3 / 42
Empirical analysis
Data
I We use two complementary datasets
I Consumer Expenditure Survey (CEX, 2004–14)
+ detailed expenditure categories
+ self-reported owner-equivalent rent
– can’t compute net worth: only liquid wealth
I Panel Survey of Income Dynamics (PSID, 2004–14)
– more aggregated expenditure categories
– have to impute owner-equivalent rent
+ detailed measures of wealth
4 / 42
Tradable expenditure shares (CEX)
I Total expenditures: 500+ expenditure categories
I exclude mortgage interest, property taxes, home insurance
I include self-reported owner’s equivalent rent
I Tradable expenditures: 307 items
I if imports or exports exceed 11 percent of production Examples
I 23,484 working-age household-year observations
5 / 42
Tradable expenditure shares (PSID)
Exp. category Tradable Nontradable
Child care & education X
Clothing X
Food food at home away from home
Health care prescriptions all other
Housing w/o repairs furnishings utilities, rent∗
Transportation gasoline, purchase and all other
w/o repairs lease of cars and trucks
Vacation/ent. 22 percent all other
Repairs 21 percent all other
I ∗ : excludes mortgage, property taxes, and home insurance, but includes
owner’s equivalent rent, imputed by dividing state-level price-to-rent
ratios from value of primary residence
I 30,244 working-age household-year observations
6 / 42
Tradable shares and disposable labor income
I Tradable shares decline with disposable labor income
I Level is higher in CEX
0.35
0.40
0.45
trada
ble
expe
nditu
re s
hare
(CEX
)
1 2 3 4 5 6 7 8 9 10disposable labor income decile
0.25
0.30
0.35
trada
ble
expe
nditu
re s
hare
(PSI
D)
1 2 3 4 5 6 7 8 9 10disposable labor income decile
7 / 42
Tradable shares and wealth
I Tradable shares decline with wealth
0.35
0.40
0.45
trada
ble
expe
nditu
re s
hare
(CEX
)
1 2 3 4 5 6 7 8 9 10liquid wealth decile
0.25
0.30
0.35
trada
ble
expe
nditu
re s
hare
(PSI
D)
1 2 3 4 5 6 7 8 9 10wealth decile
8 / 42
Related empirical work
I Boppart (2014) uses CEX to show that goods expenditure
shares decline with income
I Borusyak and Jaravel (2018) also use CEX to show that
import expenditure shares are similar across income and
education groups
I We focus on tradable expenditure shares since trade can
impact prices of all tradable goods and services through
I increased competition
I input-output linkages
I Many other papers use barcode data, which cover a small
fraction of overall household expenditures
9 / 42
Summary of empirical findings
I Tradable expenditure shares decline with income and wealth
I Robust to controlling for household characteristics: Regressions
I household head age and education
I household size
I home ownership
I Robust to: Sensitivity
I excluding all housing expenditures
I no partial PSID adjustments (vacation/ent./repairs)
I using total labor income
I alternative tradability measures (to include indirect imports)
I Motivates our model of
I uninsurable income risk → wealth and income heterogeneity
I non-homothetic preferences → different consumption baskets
10 / 42
Summary of empirical findings
I Tradable expenditure shares decline with income and wealth
I Robust to controlling for household characteristics: Regressions
I household head age and education
I household size
I home ownership
I Robust to: Sensitivity
I excluding all housing expenditures
I no partial PSID adjustments (vacation/ent./repairs)
I using total labor income
I alternative tradability measures (to include indirect imports)
I Motivates our model of
I uninsurable income risk → wealth and income heterogeneity
I non-homothetic preferences → different consumption baskets10 / 42
Model
Main ingredients of model
I Ricardian model of trade (Dornbusch-Fisher-Samuelson 1977)
I Uninsurable labor income risk
(Aiyagari-Bewley-Hugget-Imrohoroglu)
I Capital-skill complementarity (Stokey,
Krusell-Ohanian-Rios-Rull-Violante, Parro)
I Non-homothetic preferences (Stone-Geary)
I Linear labor and capital income taxes
11 / 42
Model
I Two symmetric countries indexed by i = 1, 2
I Households
I consume, work, and save
I 2 types: unskilled and skilled
I face uninsurable labor income risk
I Production and Trade
I tradables and non-tradables used for consumption and for
investment
I ω ∈ [0, 1] continuum of tradable intermediate goods
I shipment of good ω from o to i faces trade costs τoiI τoi consists of a technological cost τoi ,T and a tariff τi ,P
I Government taxes to finance wasteful spending
12 / 42
Outline of model
I We begin with the production of tradable goods
Households
NontradablesproducerDomestic
intermediate tradablesproducer
Foreign Intermediate
tradablesproducer
Tradablesproducer
Capital producer
12 / 42
Final tradables producer
I A representative final tradables producer bundles the varieties
of tradables {qoi (ω)}ω,o into a final good, YiT , and solves
max{qoi (ω)}ω
PiTYiT −∫ 1
0
∑o=1,2
[τoipo (ω) qoi (ω)] dω
s.t. YiT =
{∫ 1
0
[∑o=1,2
qoi (ω)
]ρdω
} 1ρ
.
I Solution: qoi (ω) ≤(τoipo (ω)
PiT
)−θYiT , = if qoi (ω) > 0.
I Price: PiT =[∫ 1
0mino {τoipo (ω)}1−θ dω
] 11−θ
where θ = 11−ρ
is the elasticity of substitution across varieties.
13 / 42
Final tradables producer
I A representative final tradables producer bundles the varieties
of tradables {qoi (ω)}ω,o into a final good, YiT , and solves
max{qoi (ω)}ω
PiTYiT −∫ 1
0
∑o=1,2
[τoipo (ω) qoi (ω)] dω
s.t. YiT =
{∫ 1
0
[∑o=1,2
qoi (ω)
]ρdω
} 1ρ
.
I Solution: qoi (ω) ≤(τoipo (ω)
PiT
)−θYiT , = if qoi (ω) > 0.
I Price: PiT =[∫ 1
0mino {τoipo (ω)}1−θ dω
] 11−θ
where θ = 11−ρ
is the elasticity of substitution across varieties.13 / 42
Intermediate tradables producer
I Each intermediate firm produces a single tradable variety, ω
I Taking as given the price pi(ω), it solves
maxhi (ω),li (ω),ki (ω)
pi (ω) yi (ω)− wiHhi (ω)− wiLli (ω)− riki (ω)
s.t. yi (ω) = zi (ω)F (hi (ω) , li (ω) , ki (ω))
I Zero-profit price:
pi (ω) =1
zi (ω)
14 / 42
Intermediate tradables producer
I Each intermediate firm produces a single tradable variety, ω
I Taking as given the price pi(ω), it solves
maxhi (ω),li (ω),ki (ω)
pi (ω) yi (ω)− wiHhi (ω)− wiLli (ω)− riki (ω)
s.t. yi (ω) = zi (ω)F (hi (ω) , li (ω) , ki (ω))
I Zero-profit price:
pi (ω) =1
zi (ω)
14 / 42
Productivity distributions in tradables production
I Productivities for variety ω are distributed according to
z1 (ω) = eηω
z2 (ω) = eη(1−ω)
I Country i = 1 is more productive at producing high ω
15 / 42
Pattern of production (free trade)
0 0.5 1
Varieties
0
0.5
1
1.5E
ffect
ive
pric
e
1/z1( )1/z
2( )
16 / 42
Pattern of production (free trade)
0 1
Varieties
0
0.5
1
1.5E
ffect
ive
pric
e
1/z1( )1/z
2( )
16 / 42
Pattern of production (costly trade)
0 0.5 1
Varieties
0
0.5
1
1.5E
ffect
ive
pric
e
1/z1( )1/z
2( )
/z1( ) /z
2( )
17 / 42
Pattern of production (costly trade)
0 1- 1
Varieties
0
0.5
1
1.5E
ffect
ive
pric
e
1/z1( )1/z
2( )
/z1( ) /z
2( )
17 / 42
Pattern of production (costly trade)
0 1- 1
Varieties
0
0.5
1
1.5E
ffect
ive
pric
e
1/z1( )1/z
2( )
/z1( ) /z
2( )
17 / 42
Outline of model
I Let’s discuss the production of nontradable goods and capital
Households
NontradablesproducerDomestic
intermediate tradablesproducer
Foreign Intermediate
tradablesproducer
Tradablesproducer
Capital producer
17 / 42
Non-tradables producer
I A representative firm produces non-tradable output YiN
I It solves the static profit maximization problem
maxHiN ,LiN ,KiN
PiNYiN − wiHiHiN − wiLLiN − riKiN
s.t. YiN = ziNF (HiN , LiN ,KiN) .
I Numeraire: set PiN = 1
18 / 42
Capital producer
I A representative firm produces capital Xi , by solving
maxIiT ,IiN
PiXXi − PiT IiT − IiN
s.t. Xi = ziX IκiT I
1−κiN .
19 / 42
Government
I The government finances a constant stream of (wasteful)
expenditures, Gi , by collecting
I taxes on labor income, τil ,
I taxes on capital income, τik ,
I and tariffs τiP
20 / 42
Outline of model
I Next, we discuss the household problem
Households
NontradablesproducerDomestic
intermediate tradablesproducer
Foreign Intermediate
tradablesproducer
Tradablesproducer
Capital producer
Labor and capital
20 / 42
Households
I Household with skill type, j , solves
Vij (k , ε) = maxcT ,cN ,`,k ′
u (cT , cN , `) + βEε′|εVij (k ′, ε′)
s.t. PiTcT + cN + PiX (k ′ − k) ≤ w̃ij`ε + r̃ik + Ti ,
k ′ ≥ 0
where u (cT , cN , `) =
(cγT (cN + c̄)1−γ
)1−σ
1− σ− ψ `1+ν
1 + ν
I w̃ijt and r̃ijt are after-tax returns:
w̃ij = (1− τil)wij
r̃i = (1− τik)(ri − δPiX ).21 / 42
Equilibrium
A symmetric steady-state recursive equilibrium, given fiscal
policies {τl , τk , τP ,G ,T}, is, for j = H , L
I Functions {Vj , gjT , gjN , gj`, gjk},I Nontradable producer plans {YN ,HN , LN ,KN},I Final tradable producer plans
{YT , {qoi(ω)}ω∈[0,1],i=1,2,o=1,2
},
I Intermediate producer plans {yi(ω), hi(ω), li(ω), ki(ω)}ω,i ,I Capital producer plans {X , IT , IN},I Prices
{wH ,wL, r ,PT ,PX , {pi(ω)}ω,i
}, and
I Invariant distributions {µ∗j }j such that:
22 / 42
1. Given prices, households optimize.
2. Given prices, firms optimize.
3. Goods markets clear.
4. Factor markets clear.
5. Balanced trade.
6. Gov’t budget holds: G + T = τl∑
j wj
∫εgj` (k , ε) dµj (k , ε)
+τk(r − δPX )∑
j
∫kdµj (k , ε) + τP
∫qoi(ω)dω, for o 6= i .
7. For any (K, E) ∈ B, the invariant distribution µ∗j satisfies
µ∗j (K, E) =
∫S
∑ε′∈E
1{gjk (k,ε)∈K}Γ (ε′, ε) dµ∗j (k , ε) .
23 / 42
Characterization of equilibrium
I The tradable price is given by PT =1
z̃(τ),
where z̃(τ) is a measure of aggregate productivity:
z̃(τ) =
[∫ 1−ω̄(τ)
0
(z2 (ω)
τ
)θ−1
dω +∫ 1
1−ω̄(τ)z1 (ω)θ−1 dω
] 1θ−1
I Trade costs distort ...
(1
η
)η
24 / 42
Characterization of equilibrium
I The tradable price is given by PT =1
z̃(τ),
where z̃(τ) is a measure of aggregate productivity:
z̃(τ) =
[∫ 1−ω̄(τ)
0
(z2 (ω)
τ
)θ−1
dω +∫ 1
1−ω̄(τ)z1 (ω)θ−1 dω
] 1θ−1
I Trade costs distort the extensive ...
(1
η
)η
24 / 42
Characterization of equilibrium
I The tradable price is given by PT =1
z̃(τ),
where z̃(τ) is a measure of aggregate productivity:
z̃(τ) =
[∫ 1−ω̄(τ)
0
(z2 (ω)
τ
)θ−1
dω +∫ 1
1−ω̄(τ)z1 (ω)θ−1 dω
] 1θ−1
I Trade costs distort the extensive and intensive margins
(1
η
)η
24 / 42
Characterization of equilibrium
I The tradable price is given by PT =1
z̃(τ),
where z̃(τ) is a measure of aggregate productivity:
z̃(τ) =
[∫ 1−ω̄(τ)
0
(z2 (ω)
τ
)θ−1
dω +∫ 1
1−ω̄(τ)z1 (ω)θ−1 dω
] 1θ−1
I The capital price is given by PX =1
zX
(PT
κ
)κ(1
1− κ
)1−κ
I Comparative statics:
d log (PT )
dτ= −d log (z̃(τ))
dτ> 0
d log (PX )
dτ= −κd log (z̃(τ))
dτ> 0
24 / 42
Quantitative Analysis
Quantitative Analysis
I Calibrate model to match features of U.S. economy
I Experiment
I impose a tariff of 20 percent
I compute transition to new steady state
I Various fiscal policies
I increase government expenditure
I reduce labor income tax
I reduce capital income tax
I lump-sum redistribute
25 / 42
Calibration
I Preferences:
Parameters Values Targets / Source
Discount factor β 0.96 Wealth-to-GDP: 4.8 (2014)
Risk aversion σ 2 Standard value
Tradable share γ 0.27 Tradable exp. share: 36% (2004–14)
Non-homotheticity c̄ , 0.09 Tradable exp. share of top
wealth quartile: 31 percent (2004–14)
Disutility from labor ψ 440 Average hours: 30 percent
Frisch elasticity 1/ν 0.5 Standard value
26 / 42
Calibration
I Technology:
F (L,H ,K ) =[
(1− µ) Lζ + µ[(1− α)Hχ + αKχ]ζχ
] 1ζ
Parameters Values Targets / Source
Skilled fraction, H̄ 0.33 Skilled labor force: 33 percent
Capital weight, α 0.83 Capital income share: 36 percent
Skilled weight, µ 0.61 Skilled labor inc. share: 36 percent
Elasticity of substitutions,
unskilled–capital, 1/(1− ζ) 1.67 Krusell et al. (2000)
skilled–capital, 1/(1− χ) 0.67 Krusell et al. (2000)
27 / 42
Calibration
I Assume τP = 0 (less than 2% of gov’t revenue in 2014)
I Other parameters:
Parameters Values Targets / Source
Elas. of subs. between
tradable intermediates, θ 5.7 Trade elasticity: 4
Factor elasticity, κ 0.59 Tradable input shares in capital production
Productivity distribution, η 1.29 Employment share of top 17 percent of large
manufacturing establishments: 32 percent
Iceberg cost, (τ − 1)× 100 0.27 Import share: 17 percent
Income tax, τ` = τk 0.19 Government consumption: 15 percent of GDP
28 / 42
Productivity shocks
I ε follows a finite-state Markov process which approximates
the continuous process,
log εt = ρε log εt−1 + νt , νt ∼ N(0, σ2
ν
)
I We set ρε = 0.92 and σν = 0.21 following Floden and Linde
(2001)
29 / 42
Main results
I Without redistribution
I tariffs harm skilled more than unskilled and poor more than
rich
I With redistribution
I labor income tax reduction delivers higher average welfare
than capital income tax reduction, but also lower GDP
I small average welfare increase from lump-sum redistribution,
at the expense of the skilled
30 / 42
Effect of tariffs on prices
I Tradables price and investment price do not depend on how
tariff revenue is spent
(a) Tradables price
0 20 40 60Time
100
105
Inde
x (p
erio
d 0
= 1
00)
(b) Investment price
0 20 40 60Time
100
105In
dex
(per
iod
0 =
100
)
31 / 42
Effect of tariffs on factor prices
(a) After-tax skilled wage
0 20 40 60Time
95
100
105
Inde
x (p
erio
d 0
= 1
00)
(b) After-tax unskilled wage
0 20 40 60Time
95
100
105
Inde
x (p
erio
d 0
= 1
00)
(c) After-tax net return
0 20 40 60Time
2
2.5
3
Per
cent
Government expenditureCapital income taxLabor income taxLumpsum transfer
32 / 42
Effect of tariffs on economic activity
(a) Consumption
0 20 40 60Time
95
100
105In
dex
(per
iod
0 =
100
) Government expenditureCapital income taxLabor income taxLumpsum transfer
(b) Investment
0 20 40 60Time
95
100
Inde
x (p
erio
d 0
= 1
00)
(c) GDP
0 20 40 60Time
95
100
105
Inde
x (p
erio
d 0
= 1
00)
(d) Capital
0 20 40 60Time
95
100In
dex
(per
iod
0 =
100
)
33 / 42
Welfare Calculation
I For each household, we compute the consumption
equivalence, ∆
I How much would initial steady state consumption have to be
permanently increased for a household to be indifferent
between raising tariffs or not?
I Solve for ∆ such that Vj∆ (k , ε) = Vj ,t=1 (k , ε)
Vj∆ (k , ε) =u((1 + ∆) g ss
jT (k , ε) , (1 + ∆) g ssjN (k , ε) , g ss
j` (k , ε))
+ βEε′|εVj∆
(g ssjk (k , ε) , ε′
).
I If ∆ > 0, then the household supports tariffs. If ∆ < 0, then
it does not.34 / 42
Welfare
I lowest average welfare with wasteful government spending
I labor income tax reduction delivers higher average welfare
than capital income tax reduction.
I small average welfare increase from lump-sum redistribution
Table: Average Welfare
Govt expenditure −3.13
Capital inc. tax −1.52
Labor inc. tax −0.98
Lump-sum tax 0.23
Units: percent.
35 / 42
Welfare across skill type
I absent redistribution, tariffs harm skilled more than unskilled
and poor more than rich
I unskilled benefit from lump-sum redistribution at the expense
of the skilled
Table: Average welfare by skill level
Fiscal policy unskilled skilled
Govt expenditure −2.91 −3.57
Capital inc. tax −1.80 −0.96
Labor inc. tax −0.80 −1.35
Lump-sum tax 1.47 −2.30
Units: percent.
36 / 42
Welfare across the wealth distribution
0 10 20 30Wealth
-4
-2
0
2
Con
sum
ptio
n eq
uiva
lent
(pe
rcen
t)Government expenditureCapital income taxLabor income taxLumpsum transfer
37 / 42
Decomposing welfare changes
We conduct three partial equilibrium exercises to isolate effects
on welfare from three channels
PTcT + cN + PX (k ′ − k) ≤ w̃j`ε + r̃k + T
I Expenditure channel: PT ↑ makes tradable consumption more
expensive.
I Poor vs. Wealthy
38 / 42
Decomposing welfare changes
We conduct three partial equilibrium exercises to isolate effects
on welfare from three channels
PTcT + cN + PX (k ′ − k) ≤ w̃j`ε + r̃k + T
I Investment channel: PX ↑ makes accumulating capital more
expensive
I Savers vs. Dissavers
38 / 42
Decomposing welfare changes
We conduct three partial equilibrium exercises to isolate effects
on welfare from three channels
PTcT + cN + PX (k ′ − k) ≤ w̃j`ε + r̃ k + T
I Factor price channel: w̃j and r̃ change
I Labor vs Capital
I Skilled vs Unskilled
38 / 42
Welfare by channel (government spending)
(a) Total
0 10 20 30Wealth
-4
-2
0
2
Con
sum
ptio
n eq
uiva
lent
(pe
rcen
t)
Low prod. (skilled)High prod. (skilled)Low prod. (unskilled)High prod. (unskilled)
(b) Expenditure
0 10 20 30Wealth
-4
-3
-2
-1
0
Con
sum
ptio
n eq
uiva
lent
(pe
rcen
t)
(c) Investment
0 10 20 30Wealth
-2
-1
0
1
2
Con
sum
ptio
n eq
uiva
lent
(pe
rcen
t)
(d) Factor price
0 10 20 30Wealth
-4
-2
0
2
4
Con
sum
ptio
n eq
uiva
lent
(pe
rcen
t)
39 / 42
Decomposition of welfare changes for unskilled
Channels
Low wealth High wealth
AverageLow prod. High prod. Low prod. High prod.
Expenditure −3.49 −2.50 −2.40 −2.27 −2.75
Investment −0.08 −0.58 1.54 0.67 0.32
Factor priceGovt Expend −0.53 −0.29 −0.35 −0.04 −0.47
Capital inc. tax 0.09 0.90 2.13 2.45 0.71
Labor inc. tax 2.24 2.34 0.18 0.86 1.69
Lump-sum redist. −0.15 0.14 −0.34 0.13 −0.18
AllGovt Expend. −4.09 −3.37 −1.25 −1.69 −2.91
Capital inc. tax −3.49 −2.28 1.14 0.67 −1.80
Labor inc. tax −1.40 −0.81 −0.70 −0.78 −0.80
Lump-sum redist. 3.98 −0.05 1.20 0.29 1.47
Units: percent.
40 / 42
Decomposition of welfare changes for skilled
Table: Decomposition of welfare changes for skilled
Channels
Low wealth High wealth
AverageLow prod. High prod. Low prod. High prod.
Expenditure −2.48 −2.12 −2.16 −2.06 −2.20
Investment −0.08 −0.63 1.35 0.34 0.37
Factor priceGovt Expend −2.01 −1.69 −1.51 −1.03 −1.74
Capital inc. tax 0.21 1.12 1.41 2.17 0.95
Labor inc. tax 1.04 1.19 −0.26 0.47 0.52
Lump-sum redist. −2.20 −1.82 −1.76 −1.15 −1.95
AllGovt Expend. −4.52 −4.41 −2.35 −2.78 −3.57
Capital inc. tax −2.36 −1.74 0.52 0.28 −0.96
Labor inc. tax −1.55 −1.61 −1.09 −1.30 −1.35
Lump-sum redist. −1.94 −3.45 −1.28 −2.08 −2.30
Units: percent.
41 / 42
Conclusion
I Without redistribution . . .
I bilateral tariffs generate large welfare losses regardless of
income/wealth/skill, but especially hurts the poor
I raises the cost of their consumption
I do not benefit from selling capital
I their wage falls
I With redistribution . . .
I capital income tax reduction leads to highest aggregate
economic activity, but lowest average welfare (really hurts the
poor)
I Lump-sum rebating tariff revenue can produce a welfare gain
on average, but at the expense of skilled
42 / 42
Appendix
42 / 42
Tradability measures back
CEX item IO itemmax(exp, imp)
production
exp + imp∗
productionTradable
Men’s suits Apparel manufacturing 5.60 7.35 yes
Calculators Other comm and service 0.23 0.57 yes
industry machinery mfg.
Airline fares Air transportation 0.20 0.36 yes
Plastic dinnerware Oth. plastics prod. mfg. 0.12 0.29 yes
Paint, wallpaper, Paint and coating mfg. 0.09 0.13 no
and supplies
Office Office furniture, custom 0.08 0.11 no
furniture architectural woodwork,
and millwork mfg.
Newspaper subscr. Newspaper publishers 0.03 0.03 no
Dining out Restaurants 0.00 0.00 no
I ∗ : direct and indirect imports
43 / 42
Tradable shares, wealth, and income back
Tradable expenditure share (percent)
(1) (2) (3) (4)
PSID PSID CEX CEX
ln(Wealth) –1.03∗∗∗ –0.64∗∗∗ –1.12∗∗∗ –0.37∗∗∗
(0.04) (0.05) (0.04) (0.04)
ln(Income) –0.20∗∗ –0.46∗∗∗ –0.24∗ –1.17∗∗∗
(0.09) (0.10) (0.13) (0.14)
College –2.77∗∗∗ –3.31∗∗∗
(0.15) (0.19)
Homeowner –1.31∗∗∗ –6.06∗∗∗
(0.19) (0.21)
Other controls no yes no yes
N 30244 30228 23484 23484
Adj. R2 0.036 0.066 0.076 0.167
Standard errors in parentheses. All regressions include year fixed effects.
Other controls include fixed effects for age and household size.
∗ p < 0.10, ∗∗ p < 0.05, ∗ ∗ ∗ p < 0.01
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Sensitivity analysis back
Tradable expenditure share (percent)
(1) (2) (3) (4) (5) (6)
PSID PSID PSID CEX CEX CEX
no housing no partial adj. total lab. inc. no housing total lab. inc. alt. tradability
ln(Wealth) –0.84∗∗∗ –0.76∗∗∗ –0.76∗∗∗ –1.00∗∗∗ –0.34∗∗∗ –0.17∗∗∗
(0.07) (0.05) (0.05) (0.04) (0.04) (0.04)
ln(Income) –2.14∗∗∗ –0.66∗∗∗ –0.41∗∗∗ –2.50∗∗∗ –1.03∗∗∗ –0.24∗
(0.14) (0.10) (0.08) (0.15) (0.11) (0.14)
N 30220 30228 28212 23387 21934 23484
Adj. R2 0.047 0.079 0.072 0.254 0.167 0.163
Standard errors in parentheses. ∗ p < 0.10, ∗∗ p < 0.05, ∗ ∗ ∗ p < 0.01
All regressions include year, age, household size, education, and homeowner fixed effects.
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Wealth distribution
I Wealth Gini in model: 0.59
Figure: Data
0
5
10
15
20
wea
lth (P
SID
, uni
ts: G
DP
per c
apita
)
10 20 30 40 50 60 70 80 90wealth percentiles
Figure: Model
0
5
10
15
20
wea
lth (P
SID
, uni
ts: G
DP
per c
apita
)
10 20 30 40 50 60 70 80 90wealth percentiles
46 / 42
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