Fiscal Policy and MPC Heterogeneity

We use responses to survey questions in the 2010 Italian Survey of Household Income and Wealth that ask consumers how much of an unexpected transitory income change they would consume. The marginal propensity to consume (MPC) is 48 percent on average. We also find substantial heterogeneity in the distribution, as households with low cash-on-hand exhibit a much higher MPC than affluent households, which is in agreement with models with precautionary savings, where income risk plays an important role. The results have important implications for predicting household responses to tax reforms and redistributive policies. (JEL D12, D14, E21, E62, H23, H24)

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Reported MPC and Unobserved Heterogeneity

American Economic Journal Economic Policy ◽

10.1257/pol.20180420 ◽

2020 ◽

Vol 12 (4) ◽

pp. 275-297

Author(s):

Tullio Jappelli ◽

Luigi Pistaferri

Keyword(s):

Unobserved Heterogeneity ◽

Negative Relationship ◽

Fiscal Policies ◽

Regression Methods ◽

Household Resources ◽

Italian Survey ◽

Marginal Propensity To Consume ◽

Strong Negative Relationship ◽

Marginal Propensity ◽

The Relationship

Panel data on reported marginal propensity to consume in the 2010 and 2016 Italian Survey of Household Income and Wealth uncover a strong negative relationship between cash on hand and MPC. Even though the relationship is attenuated when using regression methods that control for unobserved heterogeneity, the amount of bias is moderate. MPC estimates are used to evaluate the effectiveness of revenue-neutral fiscal policies targeting different parts of the distribution of household resources. (JEL E21, E62, G51)

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The Effects of the Persistence of Labor Income Shocks on Precautionary Savings and the Marginal Propensity to Consume: An Analytical Approach

KUKJE KYUNGJE YONGU ◽

10.17298/kky.2007.13.3.006 ◽

2007 ◽

Vol 13 (3) ◽

pp. 127-149

Author(s):

박명호

Keyword(s):

Analytical Approach ◽

Precautionary Savings ◽

Labor Income ◽

Income Shocks ◽

Marginal Propensity To Consume ◽

Marginal Propensity

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The Distribution of Wealth and the MPC: Implications of New European Data

The American Economic Review ◽

10.1257/aer.104.5.107 ◽

2014 ◽

Vol 104 (5) ◽

pp. 107-111 ◽

Cited By ~ 30

Author(s):

Christopher D. Carroll ◽

Jiri Slacalek ◽

Kiichi Tokuoka

Keyword(s):

Wealth Distribution ◽

Wealth Inequality ◽

Income Shocks ◽

Income Dynamics ◽

Aggregate Consumption ◽

Distribution Of Wealth ◽

Marginal Propensity To Consume ◽

Transitory Shocks ◽

Transitory Income ◽

Marginal Propensity

Using a standard, realistically calibrated model of buffer-stock saving with transitory and permanent income shocks, we study how cross-country differences in the wealth distribution and household income dynamics affect the marginal propensity to consume out of transitory shocks (MPC). Across the 15 countries in our sample, we find that the aggregate consumption response ranges between 0.1 and 0.4 and is stronger (i) in economies with large wealth inequality, where a larger proportion of households has little wealth, (ii) under larger transitory income shocks, and (iii) when we consider households only use liquid assets (rather than net wealth) to smooth consumption.

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Can Tax Rebates Stimulate Consumption Spending in a Life-Cycle Model?

American Economic Journal Macroeconomics ◽

10.1257/mac.6.1.162 ◽

2014 ◽

Vol 6 (1) ◽

pp. 162-189 ◽

Cited By ~ 5

Author(s):

Jonathan Huntley ◽

Valentina Michelangeli

Keyword(s):

Life Cycle ◽

Portfolio Choice ◽

Precautionary Savings ◽

Financial Assets ◽

Life Cycle Model ◽

Cycle Model ◽

Marginal Propensity To Consume ◽

Tax Returns ◽

Marginal Propensity ◽

Earnings Risk

We build a life-cycle model with earnings risk, liquidity constraints, and portfolio choice over tax-deferred and taxable assets to evaluate how household consumption changes in response to shocks to transitory anticipated income, such as the 2001 income tax rebate. Households optimally invest in tax-deferred assets, which are encumbered by withdrawal penalties, and exchange taxable precautionary savings for higher after-tax returns. The model predicts a higher marginal propensity to consume out of a rebate than is predicted by a standard frictionless life-cycle model. Liquidity-constrained households—with few financial assets or portfolios expensive to reallocate—consume a higher fraction of the rebates. (JEL D91, E21, G11, H24)

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Can Consumers Distinguish Persistent from Transitory Income Shocks?

The Economic Journal ◽

10.1093/ej/ueaa047 ◽

2020 ◽

Vol 130 (632) ◽

pp. 2410-2437

Author(s):

Jeppe Druedahl ◽

Thomas H Jørgensen

Keyword(s):

Imperfect Information ◽

Panel Study ◽

Income Shocks ◽

Income Dynamics ◽

Marginal Propensity To Consume ◽

Transitory Income ◽

Marginal Propensity ◽

Novel Method ◽

Consumption Saving ◽

Robust Result

Abstract The degree to which consumers can distinguish persistent from transitory income shocks is paramount for consumption-saving dynamics. In particular, even a small amount of imperfect information causes a severe bias in conventional estimators of the marginal propensity to consume. We provide a novel method that can identify consumers’ degree of information by using panel data on income and consumption, even allowing for measurement error. Employing our method to data from the Panel Study of Income Dynamics, we find that households have almost perfect information. This robust result indicates that the conventional estimators of the marginal propensity to consume are on firm ground.

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A Theory of the Consumption Function, With and Without Liquidity Constraints

The Journal of Economic Perspectives ◽

10.1257/jep.15.3.23 ◽

2001 ◽

Vol 15 (3) ◽

pp. 23-45 ◽

Cited By ~ 215

Author(s):

Christopher D Carroll

Keyword(s):

Liquidity Constraints ◽

Original Description ◽

Precautionary Saving ◽

Income Risk ◽

Labor Income Risk ◽

Marginal Propensity To Consume ◽

Precautionary Behavior ◽

Marginal Propensity ◽

Future Income ◽

Relationship Of

This paper argues that the modern stochastic consumption model, in which impatient consumers face uninsurable labor income risk, matches Milton Friedman's (1957) original description of the Permanent Income Hypothesis much better than the perfect foresight or certainty equivalent models did. The model can explain the high marginal propensity to consume, the high discount rate on future income, and the important role for precautionary behavior that were all part of Friedman's original framework. The paper also explains the relationship of these questions to the Euler equation literature, and argues that the effects of precautionary saving and liquidity constraints are often virtually indistinguishable.

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Dynamic effects of consumption tax reforms with durable consumption

The B E Journal of Macroeconomics ◽

10.1515/bejm-2019-0026 ◽

2020 ◽

Vol 20 (2) ◽

Author(s):

Qian Li

Keyword(s):

Generation Model ◽

Consumption Tax ◽

Income Risk ◽

Tax Reforms ◽

Market Completeness ◽

Durable Consumption ◽

Poor Households ◽

Borrowing Constraint ◽

The Difference ◽

Consumption Taxes

AbstractThis paper introduces durables into a dynamic general equilibrium overlapping generation model with idiosyncratic income shocks and endogenous borrowing constraints, which depend on durables. The aim of this paper is to evaluate the welfare effects of consumption tax reforms in a richer model that captures the difference between nondurable and durable consumption. When durables are considered, the standard results that a shift to consumption taxes is welfare improving are overturned. The mechanism of this opposing result is that consumption tax makes durable consumption more expensive without relaxing the borrowing constraint. The inability of borrowing to insure against income risk deviates the economy further away from market completeness and particularly hurts young and poor households. As a result, welfare decreases, coupled with negative redistribution.

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ANALISIS TINGKAT KONSUMSI DAN ELASTISITAS PENDAPATAN TERHADAP PENGELUARAN PANGAN DAN NON PANGAN KARYAWAN PT SALONOK LADANG MAS

MAHATANI: Jurnal Agribisnis (Agribusiness and Agricultural Economics Journal) ◽

10.52434/mja.v3i1.915 ◽

2020 ◽

Vol 3 (1) ◽

Author(s):

Rio Cahya Perdana ◽

Tirsa Neyatri Bandrang

Keyword(s):

Marginal Propensity To Consume ◽

Marginal Propensity

Pola konsumsi karyawan memiliki perbedaan pada tingkat jabatan dan pendapatan sehingga berpengaruh terhadan tingkat konsumsinya serta pola konsumsi dan pengeluaran konsumsi suatu rumah tangga pada karyawan serta berbeda pula persentase penggunaan pendapatan yang digunakan untuk konsumsi. Tujuan dari penelitian ini adalah untuk mengetahui pola konsumsi karyawan PT Salonok Ladang Mas, sehingga dapat dilihat perbedaan pola konsumsi pangan antara karyawan pimpinan dengan karyawan pelaksana, selanjutnya dapat diketahui besarnya perubahan konsumsi pangan akibat perubahan pendapatan. Metode penelitian yang digunakan adalah secara purposive dengan alasan keragaman pendapatan yang sangat bervariasi. Pengambilan sampel karyawan sebanyak 14 sampel untuk karyawan pimpinan dan 90 sampel untuk karyawan pelaksana. Dengan metode simple random sampling. Jumlah sampel ditentukan dengan Metode Slovin. Metode di analisis dengan metode analisis deskriptif, menghitung persen rata-rata pengeluaran konsumsi pangan, Marginal Propensity to Consume (MPC), dan Elastisitas pendapatan. Hasil penelitian diperoleh kesimpulan bahwa tidak terdapat perbedaan yang signifikan mengenai pola konsumsi hanya yang membedakan adalah jumlah bahan pangan yang dikonsumsi dan besarnya pengeluaran konsumsi. Pengeluaran konsumsi pangan karyawan pelaksana lebih tinggi di bandingkan karyawan pimpinan, ini menunjukkan tingkat kesejahteraan karyawan pimpinan lebih tinggi dibandingkan karyawan pelaksana. tingkat pendapatan terhadap jumlah pengeluaran konsumsi pangan adalah “ inelastis”.

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