Reported MPC and Unobserved Heterogeneity
Tullio Jappelli () and
Luigi Pistaferri ()
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Luigi Pistaferri: Stanford University, SIEPR, NBER and CEPR
CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy
We use panel data on reported marginal propensity to consume (MPC) in the 2010 and 2016 Italy’s Survey of Household Income and Wealth. We uncover a strong negative relationship between cash-on-hand and MPC. This relation is attenuated by using regression methods that control for unobserved heterogeneity. The estimates are used to show that the effectiveness of revenue-neutral fiscal policies is much weaker relative to a case in which both observed and unobserved heterogeneity are not taken into account, particularly for policies that target the bottom part of the distribution of household resources.
Keywords: Transitory Income Shocks; Marginal Propensity to Consume; Panel Data (search for similar items in EconPapers)
JEL-codes: D12 D14 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:505
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