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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

Abstract: 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
Date: 2018-06-29
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