Heterogeneity in the marginal propensity to consume out of wealth: Evidence from Spanish panel data

Antonio Cutanda and Juan A. Sanchis
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Antonio Cutanda: Universidad de Valencia, Valencia, Spain
Juan A. Sanchis: Universidad de Valencia and ERICES, Valencia, Spain

No 2508, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This paper estimates the marginal propensity to consume out of wealth using Spanish panel data from the Survey on Household Finances from 2002 to 2017. This period comprises an entire economic cycle for the Spanish economy, including the Great Recession and the housing bubble. We estimate marginal propensities to consume out of wealth about 4%, which aligns with the values obtained for comparable economies. Further, our panel data estimates indicate that ignoring unobserved individual fixed effects might bias the estimates. Additionally, we confirm that the estimated parameters change along the income and wealth distributions, confirming a concave consumption function for the Spanish case. We do not find a statistically significant effect of financial or liquid wealth on non-durable consumption and confirm a higher marginal propensity to consume for hand-to-mouth consumers. Finally, the financial crisis had a relevant and negative impact on the size of the marginal propensity to consume out of wealth.

Keywords: Marginal Propensity to Consume out of Wealth; Liquid and Illiquid wealth; Hand-to-Mouth; Heterogeneity (search for similar items in EconPapers)
JEL-codes: C23 D15 D31 E21 (search for similar items in EconPapers)
Date: 2025-04
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