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Spending by Bottom-80% U.S. Households Is Persistently Greater than Income. What Funds the Deficit?

Roth, Steve (2021): Spending by Bottom-80% U.S. Households Is Persistently Greater than Income. What Funds the Deficit?

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Abstract

This paper employs the recently released BEA Distribution of Personal Income accounts to explore economic measures that have been surprisingly hard to assemble: household income quintiles’ annual spending relative to annual income. The personal sector’s income-minus-spending surplus (“saving”) is heavily dominated by the top quintile. The bottom 80% runs persistent spending deficits, dissaving, implying ongoing asset disaccumulation that should encounter Minsky/Hicks’ “survival” or “sustainable-consumption” constraint. The bottom 80%’s annual propensity to spend, or spending multiplier, is consistently greater than one. Employing balance-sheet-complete stock-flow-consistent accounting, the deficit is found to be largely explained or “funded” by two additional asset sources that are not included in income: borrowing from the financial/banks sector, and — to a far greater extent — holding gains on asset holdings. The accompanying workbook provides time series of annual propensities to spend out of 1. Disposable income and 2. Haig-Simons income, for each quintile, 2000–2019. Accuracy and possible extensions to the data sources and methodology are discussed.

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