Wealth Heterogeneity and Consumer Spending

Economists have become increasingly interested in the effects of household heterogeneity on macroeconomic dynamics.1Changes in the distribution of income and wealth, coupled with advances in data and computation, have brought questions about how heterogeneity affects macroeconomic dynamics to the forefront of the discipline. Further, wealth has become increasingly concentrated among high-income households during recent decades, as seen across a variety of measures, including the Federal Reserve Board's Distributional Financial Accounts. In this note, we provide new evidence on the implications of wealth heterogeneity for consumer spending. In particular, we find that rising wealth concentration has reduced the average propensity to consume out of wealth, which helps to explain the weak recovery following the Great Recession.