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Financial concerns and the marginal propensity to consume in Covid times: evidence from UK survey data

Bruno Albuquerque () and Georgina Green ()
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Georgina Green: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 965, Bank of England working papers from Bank of England

Abstract: We study how household concerns about their future financial situation may affect the marginal propensity to consume (MPC) during the Covid-19 pandemic. We use a representative survey of UK households to compute the MPC from a hypothetical transfer of £500. We find that household expectations play a key role in determining differences in MPCs across households: households concerned about not being able to make ends meet have a 20% higher MPC than other households. This novel result holds when controlling for a range of important household-specific characteristics, including liquidity constraints. Our findings suggest that policies targeted to vulnerable and financially distressed households may prove more effective in stimulating demand than providing stimulus payments to all households.

Keywords: Covid-19; marginal propensity to consume; survey data; household behaviour; expectations; financial concerns; fiscal polic (search for similar items in EconPapers)
JEL-codes: D12 E21 E62 G51 H31 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2022-03-04
New Economics Papers: this item is included in nep-eur, nep-fdg and nep-mac
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Working Paper: Financial Concerns and the Marginal Propensity to Consume in COVID Times: Evidence from UK Survey Data (2022) Downloads
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