Discussion paper

DP15934 Information and Wealth Heterogeneity in the Macroeconomy

We document systematic differences in macroeconomic expectations across U.S. households and rationalize our findings with a theory of information choice. We embed this theory into an incomplete-markets model with aggregate risk. Our model is quantitatively consistent with the pattern of expectation heterogeneity in the data. Relative to a full-information counterpart, our model implies substantially increased macroeconomic volatility and inequality. We show through the example of a wealth tax that neglecting the information channel leads to erroneous conclusions about the effects of policies. While in the model without information choice a wealth tax reduces wealth inequality, in our framework it reduces information acquired in the economy, leading to increased volatility and higher wealth inequality in equilibrium.

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Citation

Broer, T, A Kohlhas, K Mitman and K Schlafmann (eds) (2021), “DP15934 Information and Wealth Heterogeneity in the Macroeconomy”, CEPR Press Discussion Paper No. 15934. https://cepr.org/publications/dp15934