B4743 - SAVING, WEALTH AND ECONOMIC BEHAVIOUR: MICRO MEETS MACRO

Learning outcomes

At the end of the course, students will have a knowledge of the principles of the economic analysis of consumption and saving, and potentially also labour-supply, over the lifecycle. The economic models that are applied are dynamic and may incorporate uncertainty. Knowledge of these principles allows students to look at recent literature on how the economic choices of households can be influenced by the amounts and types of assets that they own, and to understand why the strength of macroeconomic responses to shocks and public-policy interventions will often depend on which households are most affected by the shock or by the policy intervention.

Course contents

In the first part of the course students will become familiar with standard economic models of the consumption and savings decisions of households. The model will first be developed in a two-period setup with no uncertainty. Extensions to a longer-horizon and to the case of uncertainty will then be added. Labour-supply decisions might be considered.

The second part of the course will look at applications. Examples could include:

- The literature on how consumption and saving (and possibly labour-supply) respond to resource shocks. These shocks could be to financial wealth, or to (expected) labour incomes.
- The relationship between house prices, the consumption spending of households and aggregate consumption.
- How stimulus payments (to support consumption during economic downturns) affect the behaviour of different families, and whether the macroeconomic efficacy of stimulus packages can be affected by who receives support.
- Using the model framework to think about how (temporary) changes in sales taxes (VAT) can be used as a policy to stimulate consumption and economic activity.

Throughout the course, we will keep in mind how institutions and public policy decisions might be shaping the decisions of households and so the evolution of the economy.

Readings/Bibliography

Specific readings, appropriate for the applications to be discussed, will be provided at the beginning of the course. The following might provide some useful background.

The baseline models of intertemporal choice are described in standard microeconomics texts (see Chapter 10 of Varian, Intermediate Microeconomics, 9^th International student edition, chapter 10) and also some intermediate macroeconomics texts.

Sections 7.1 and 7.2 of Attanasio and Wakefield (2010), “The Effects on Consumption and Saving of Taxing Asset Returns” (chapter 7 of Dimensions of Tax Design, volume 1 of the Mirrlees Review of tax design). The chapter is available here: https://ifs.org.uk/uploads/mirrleesreview/dimensions/ch7.pdf

Greg Kaplan and Giovanni Violante offer an accessible account of one potential application of the theory on the Microeconomic Insights page here: https://microeconomicinsights.org/wealthy-hand-to-mouth-households-key-to-understanding-the-impacts-of-fiscal-stimulus/

Copies of teaching materials (slides, exercises) will be published on the university platform Virtuale.

Teaching methods

Traditional lectures led by the course lecturer. Class discussion.

Assessment methods

The main tool for assessment will be a short, written exam. The exam will be administered in person. Only in an emergency situation may in be necessary to administer the written exam “online” for some or all students. The structure of the exam will not be affected by the mode in which it is administered. The exam will likely include short-answer exercises and essay-type question(s).

The written test could be supplemented by a short project.

Final grades for the course will be out of 30. A grade of at least 18 is required to pass the course, and the maximum is 30 with distinction (“30 e lode”). As a guide, the grade scale (for “pass” grades) can be thought of as follows:

- 18 – 22: Adequate
- 23 – 25: Good
- 26 – 27: Very good
- 28 – 30: Excellent
- 30 e lode: Outstanding

Teaching tools

Slides. Handouts. Lecture notes.

Students with a disability or specific learning disabilities (DSA) are required to make their condition known in order that the best possible accommodation to their needs may be found.

Office hours

See the website of Matthew John Wakefield