Reported MPC in the presence of debt

Hector Sala and Pedro Trivin

Economics Letters, 2021, vol. 205, issue C

Abstract: We use information from the last wave of the Spanish Survey of Household Finances to study the influence of debt on self-reported marginal propensity to consume (MPC). We find an average MPC of 43% with indebted households having a smaller MPC than non-indebted households. This negative association increases along with the amount of debt. The MPC is lower for households that were subject to liquidity constraints in the previous year, and for those whose reference person is self-employed. The past relationship between income and consumption is also an important determinant of the MPC, as households that invest last year’s savings, or hold them for the future, have a lower MPC. These findings are in line with the predictions of precautionary saving models.

Keywords: Marginal propensity to consume; Debt; Survey (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Reported MPC in the Presence of Debt (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:205:y:2021:i:c:s0165176521002068

DOI: 10.1016/j.econlet.2021.109929

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