Intertemporal MPC and shock size

Tullio Jappelli, Ettore Savoia and Alessandro Sciacchetano

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We elicit the intertemporal Marginal Propensity to Consume (iMPC) based on hypothetical different size lottery winnings through questions in the Italian Survey of Consumer Expectations (ISCE). Survey respondents were asked to allocate three hypothetical lottery winnings (€1,000, €10,000, and €50,000) between consumption and saving in both the year following the survey and over the longer term. We find that the iMPC of a €1,000 win declines from about 28 % in the first year to less than 3 % in the fourth year. The impacts of large shocks are more persistent (between 16 % and 19 %) and drop to less than 4 % in the fifth year. The iMPC shows a weak negative relation to the cash-on-hand amount and a negative relation to income risk. Calibrated simulations of incomplete market models with borrowing constraints, income risk, and household heterogeneity are broadly consistent with these empirical findings.

Keywords: income shocks; intertemporal marginal Propensity to Consume; shock size (search for similar items in EconPapers)
JEL-codes: C99 D12 D14 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2026-06-30
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Published in European Economic Review, 30, June, 2026, 186. ISSN: 0014-2921

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