The Marginal Propensity to Consume and Household Savings During the COVID-19 Pandemic: Evidence from Thailand and Vietnam

Dzung Bui, Lena Dräger, Bernd Hayo and Giang Nghiem

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: Using representative household surveys conducted in Thailand and Vietnam during the COVID-19 pandemic, we find that the marginal propensity to consume is signicantly larger for positive than for negative income shocks. Moreover, we discover that the savings position plays a crucial role, as the effects are especially pronounced for households that experienced a decline in savings. This result contradicts a prediction from the life-cycle permanent income model with borrowing constraints as well as empirical evidence from industrialized countries. However, our ending is consistent with Kahneman and Tversky's prospect theory, according to which the combination of income uncertainty and loss aversion can lead households to react more strongly to positive shocks than to negative ones.

Keywords: Marginal propensity to consume (MPC); Households' savings position; Unanticipated income shocks; COVID-19; Thailand; Vietnam (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 H31 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2024-02
New Economics Papers: this item is included in nep-sea, nep-tra and nep-upt
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