Precautionary Saving and the Marginal Propensity to Consume

Miles Kimball

No 3403, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The marginal propensity to consume out of wealth is important for evaluating the effects of taxation on consumption, assessing the possibility of multiple equilibria due to aggregate demand spillovers, and explaining observed variations in consumption. It is also a component of the interest elasticity of consumption and the risk aversion of the value function which gives the expected present value of utility as a function of wealth. This paper analyzes the effect of uncertainty on the marginal propensity to consume within the context of the Permanent Income Hypothesis. Given plausible conditions on the utility function, income risk is found to raise the marginal propensity to consume out of wealth in a multiperiod model with many risky securities. The marginal investment portfolio for additions to wealth is also characterized.

Date: 1990-07
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

Published as With N. Gregory Mankiw, published as "Precautionary Saving and the Timingof Taxes", JPE, Vol. 97, no. 4 (1989): 863-879.

Downloads: (external link)
http://www.nber.org/papers/w3403.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:3403

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w3403

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().