Latent heterogeneity in the marginal propensity to consume

Daniel Lewis, Davide Melcangi and Laura Pilossoph

No 13/24, CeMMAP working papers from Institute for Fiscal Studies

Abstract: We estimate the unconditional distribution of the marginal propensity to consume (MPC) using clustering regression applied to the 2008 economic stimulus payments. By deviating from the standard approach of estimating MPC heterogeneity using interactions with observables, we can recover the full distribution of MPCs. We find households spent between 4 and 133% of the rebate within a quarter, and individual households used rebates for different goods. While many observable characteristics correlate individually with our estimated MPCs, these relationships disappear when tested jointly, except for income and the average propensity to consume. Household observable characteristics explain only 8% of MPC variation, highlighting the role of latent heterogeneity.

Date: 2024-05-28
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Latent Heterogeneity in the Marginal Propensity to Consume (2024)
Working Paper: Latent Heterogeneity in the Marginal Propensity to Consume (2019)
Working Paper: Latent Heterogeneity in the Marginal Propensity to Consume (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:azt:cemmap:13/24

DOI: 10.47004/wp.cem.2024.1324

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