Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/ssb/dispap/852.html
   My bibliography  Save this paper

MPC heterogeneity and household balance sheets

Author

Listed:
Abstract
Using Norwegian administrative data, we study how sizable lottery prizes affect household expenditure and savings. Expenditure responses (MPCs) spike in the year of winning, with a mean estimate of 0.35, and thereafter fall markedly. Controlling for all items on the household balance sheet and characteristics such as education and age, MPCs vary with the amount won and liquid assets only. Shock size matters: The MPC among the 25 percent winning least is twice as high as among the 25 percent winning most. Many households are wealthy, illiquid and have high MPCs, consistent with 2-asset models of consumer choice.

Suggested Citation

  • Andreas Fagereng & Martin B. Holm & Gisle J. Natvik, 2016. "MPC heterogeneity and household balance sheets," Discussion Papers 852, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:852
    as

    Download full text from publisher

    File URL: https://www.ssb.no/en/forskning/discussion-papers/_attachment/286054?_ts=158af859c98
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Matthew Rognlie & Ludwig Straub & Adrien Auclert, 2017. "The Intertemporal Keynesian Cross," 2017 Meeting Papers 1587, Society for Economic Dynamics.
    2. Jeppe Druedahl & Alessandro Martinello, 2022. "Long-Run Saving Dynamics: Evidence from Unexpected Inheritances," The Review of Economics and Statistics, MIT Press, vol. 104(5), pages 1079-1095, December.
    3. Tullio Jappelli & Luigi Pistaferri, 2010. "The Consumption Response to Income Changes," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 479-506, September.
    4. Martin Browning & M. Dolores Collado, 2001. "The Response of Expenditures to Anticipated Income Changes: Panel Data Estimates," American Economic Review, American Economic Association, vol. 91(3), pages 681-692, June.
    5. Jonathan A. Parker & Nicholas S. Souleles, 2017. "Reported Effects vs. Revealed-Preference Estimates: Evidence from the propensity to spend tax rebates," NBER Working Papers 23920, National Bureau of Economic Research, Inc.
    6. Briggs, Joseph & Cesarini, David & Lindqvist, Erik & Östling, Robert, 2021. "Windfall gains and stock market participation," Journal of Financial Economics, Elsevier, vol. 139(1), pages 57-83.
    7. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    8. David Autor & Andreas Kostøl & Magne Mogstad & Bradley Setzler, 2019. "Disability Benefits, Consumption Insurance, and Household Labor Supply," American Economic Review, American Economic Association, vol. 109(7), pages 2613-2654, July.
    9. Crossley, Thomas F. & Low, Hamish & Smith, Sarah, 2016. "Do consumers gamble to convexify?," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 276-291.
    10. Andreas Fagereng & Charles Gottlieb & Luigi Guiso, 2017. "Asset Market Participation and Portfolio Choice over the Life-Cycle," Journal of Finance, American Finance Association, vol. 72(2), pages 705-750, April.
    11. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
    12. Daniel Aaronson & Sumit Agarwal & Eric French, 2012. "The Spending and Debt Response to Minimum Wage Hikes," American Economic Review, American Economic Association, vol. 102(7), pages 3111-3139, December.
    13. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2007. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 707-747, October.
    14. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    15. Lorenz Kueng, 2015. "Explaining Consumption Excess Sensitivity with Near-Rationality: Evidence from Large Predetermined Payments," NBER Working Papers 21772, National Bureau of Economic Research, Inc.
    16. Christopher D. Carroll, 2004. "Theoretical Foundations of Buffer Stock Saving," Economics Working Paper Archive 517, The Johns Hopkins University,Department of Economics.
    17. Bruce D. Meyer & Wallace K. C. Mok & James X. Sullivan, 2015. "Household Surveys in Crisis," Journal of Economic Perspectives, American Economic Association, vol. 29(4), pages 199-226, Fall.
    18. Sumit Agarwal & Souphala Chomsisengphet & Neale Mahoney & Johannes Stroebel, 2015. "Regulating Consumer Financial Products: Evidence from Credit Cards," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(1), pages 111-164.
    19. Christopher D. Carroll & Thomas F. Crossley & John Sabelhaus, 2015. "Improving the Measurement of Consumer Expenditures," NBER Books, National Bureau of Economic Research, Inc, number carr11-1.
    20. David Cesarini & Erik Lindqvist & Robert Östling & Björn Wallace, 2016. "Wealth, Health, and Child Development: Evidence from Administrative Data on Swedish Lottery Players," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 687-738.
    21. Peter Kuhn & Peter Kooreman & Adriaan Soetevent & Arie Kapteyn, 2011. "The Effects of Lottery Prizes on Winners and Their Neighbors: Evidence from the Dutch Postcode Lottery," American Economic Review, American Economic Association, vol. 101(5), pages 2226-2247, August.
    22. Erlend E. Bø & Joel Slemrod & Thor O. Thoresen, 2015. "Taxes on the Internet: Deterrence Effects of Public Disclosure," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 36-62, February.
    23. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    24. Deniz Aydin, 2015. "The marginal propensity to consume out of liquidity: Evidence from a randomized controlled trial," 2015 Meeting Papers 270, Society for Economic Dynamics.
    25. Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Luigi Pistaferri & Maarten van Rooij, 2019. "Asymmetric Consumption Effects of Transitory Income Shocks," Economic Journal, Royal Economic Society, vol. 129(622), pages 2322-2341.
    26. Greg Kaplan & Benjamin Moll & Giovanni L. Violante, 2018. "Monetary Policy According to HANK," American Economic Review, American Economic Association, vol. 108(3), pages 697-743, March.
    27. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 659-684.
    28. Greg Kaplan & Giovanni L. Violante & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 77-153.
    29. Krueger, D. & Mitman, K. & Perri, F., 2016. "Macroeconomics and Household Heterogeneity," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 843-921, Elsevier.
    30. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    31. Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1687-1726.
    32. Sumit Agarwal & Chunlin Liu & Nicholas S. Souleles, 2007. "The Reaction of Consumer Spending and Debt to Tax Rebates-Evidence from Consumer Credit Data," Journal of Political Economy, University of Chicago Press, vol. 115(6), pages 986-1019, December.
    33. Martin Browning & Thomas F. Crossley & Joachim Winter, 2014. "The Measurement of Household Consumption Expenditures," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 475-501, August.
    34. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    35. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, vol. 64(4), pages 981-992, July.
    36. Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 1-55.
    37. David Cesarini & Erik Lindqvist & Matthew J. Notowidigdo & Robert Östling, 2017. "The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries," American Economic Review, American Economic Association, vol. 107(12), pages 3917-3946, December.
    38. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246, National Bureau of Economic Research, Inc.
    39. Jonathan A. Parker & Nicholas S. Souleles & David S. Johnson & Robert McClelland, 2013. "Consumer Spending and the Economic Stimulus Payments of 2008," American Economic Review, American Economic Association, vol. 103(6), pages 2530-2553, October.
    40. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 923-1012, Elsevier.
    41. Andreas Fuster & Greg Kaplan & Basit Zafar, 2021. "What Would You Do with $500? Spending Responses to Gains, Losses, News, and Loans [The Spending and Debt Response to Minimum Wage Hikes]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(4), pages 1760-1795.
    42. Guido W. Imbens & Donald B. Rubin & Bruce I. Sacerdote, 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," American Economic Review, American Economic Association, vol. 91(4), pages 778-794, September.
    43. David Berger & Veronica Guerrieri & Guido Lorenzoni & Joseph Vavra, 2018. "House Prices and Consumer Spending," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1502-1542.
    44. repec:fth:harver:1435 is not listed on IDEAS
    45. Kanishka Misra & Paolo Surico, 2014. "Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 84-106, October.
    46. James Cloyne & Clodomiro Ferreira & Paolo Surico, 2020. "Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 102-129.
    47. Greg Kaplan & Giovanni L. Violante, 2014. "A Model of the Consumption Response to Fiscal Stimulus Payments," Econometrica, Econometric Society, vol. 82(4), pages 1199-1239, July.
    48. Nicola Fuchs-Schundeln, 2008. "The Response of Household Saving to the Large Shock of German Reunification," American Economic Review, American Economic Association, vol. 98(5), pages 1798-1828, December.
    49. Christopher Carroll & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2017. "The distribution of wealth and the marginal propensity to consume," Quantitative Economics, Econometric Society, vol. 8(3), pages 977-1020, November.
    50. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    51. Fagereng, Andreas & Halvorsen, Elin, 2017. "Imputing consumption from Norwegian income and wealth registry data," Journal of Economic and Social Measurement, IOS Press, issue 1, pages 67-100.
    52. Pistaferri, Luigi, 2015. "Household consumption: Research questions, measurement issues, and data collection strategies," Journal of Economic and Social Measurement, IOS Press, issue 1-4, pages 123-149.
    53. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(3), pages 743-768.
    54. Chang-Tai Hsieh, 2003. "Do Consumers React to Anticipated Income Changes? Evidence from the Alaska Permanent Fund," American Economic Review, American Economic Association, vol. 93(1), pages 397-405, March.
    55. Tal Gross & Matthew J. Notowidigdo & Jialan Wang, 2020. "The Marginal Propensity to Consume over the Business Cycle," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(2), pages 351-384, April.
    56. Ng Yew Kwang, 1965. "Why do People Buy Lottery Tickets? Choices Involving Risk and the Indivisibility of Expenditure," Journal of Political Economy, University of Chicago Press, vol. 73(5), pages 530-530.
    57. Greg Kaplan & Giovanni L. Violante & Justin Weidner, 2014. "The Wealthy Hand-to-Mouth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(1 (Spring), pages 77-153.
    58. Ziliak, James P., 1998. "Does the choice of consumption measure matter? An application to the permanent-income hypothesis," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 201-216, February.
    59. Martin Browning & S¯ren Leth-Petersen, 2003. "Imputing consumption from income and wealth information," Economic Journal, Royal Economic Society, vol. 113(488), pages 282-301, June.
    60. Matthew Rognlie & Adrien Auclert, 2016. "Inequality and Aggregate Demand," 2016 Meeting Papers 1353, Society for Economic Dynamics.
    61. Søren Leth-Petersen, 2010. "Intertemporal Consumption and Credit Constraints: Does Total Expenditure Respond to an Exogenous Shock to Credit?," American Economic Review, American Economic Association, vol. 100(3), pages 1080-1103, June.
    62. Eika, Lasse & Mogstad, Magne & Vestad, Ola L., 2020. "What can we learn about household consumption expenditure from data on income and assets?," Journal of Public Economics, Elsevier, vol. 189(C).
    63. Holm, Martin Blomhoff, 2018. "Consumption with liquidity constraints: An analytical characterization," Economics Letters, Elsevier, vol. 167(C), pages 40-42.
    64. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    65. Matthew D. Shapiro & Joel Slemrod, 2003. "Consumer Response to Tax Rebates," American Economic Review, American Economic Association, vol. 93(1), pages 381-396, March.
    66. Jonathan A. Parker, 2015. "Why Don't Households Smooth Consumption? Evidence from a 25 Million Dollar Experiment," NBER Working Papers 21369, National Bureau of Economic Research, Inc.
    67. Nicola Fuchs-Schündeln, 2008. "The Response of Household Saving to the Large Shock of German Reunification," Working Papers, Center for Retirement Research at Boston College wp2008-21, Center for Retirement Research, revised Dec 2008.
    68. Sumit Agarwal & Wenlan Qian, 2014. "Consumption and Debt Response to Unanticipated Income Shocks: Evidence from a Natural Experiment in Singapore," American Economic Review, American Economic Association, vol. 104(12), pages 4205-4230, December.
    69. Martin Browning & Mette Gørtz & Søren Leth‐Petersen, 2013. "Housing Wealth and Consumption: A Micro Panel Study," Economic Journal, Royal Economic Society, vol. 0, pages 401-428, May.
    70. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giovanni L. Violante & Greg Kaplan, 2022. "The Marginal Propensity to Consume in Heterogeneous Agent Models," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 747-775, August.
    2. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 923-1012, Elsevier.
    3. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    4. Martin Flodén & Matilda Kilström & Jósef Sigurdsson & Roine Vestman, 2021. "Household Debt and Monetary Policy: Revealing the Cash-Flow Channel," The Economic Journal, Royal Economic Society, vol. 131(636), pages 1742-1771.
    5. Edmund Crawley & Andreas Kuchler, 2020. "Consumption Heterogeneity: Micro Drivers and Macro Implications," Finance and Economics Discussion Series 2020-005, Board of Governors of the Federal Reserve System (U.S.).
    6. Christopher D. Carroll & Edmund Crawley & Jiri Slacalek & Kiichi Tokuoka & Matthew N. White, 2020. "Sticky Expectations and Consumption Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 40-76, July.
    7. d’Astous, Philippe, 2019. "Responses to an anticipated increase in cash on hand: Evidence from term loan repayments," Journal of Banking & Finance, Elsevier, vol. 108(C).
    8. Slacalek, Jiri & Tristani, Oreste & Violante, Giovanni L., 2020. "Household balance sheet channels of monetary policy: A back of the envelope calculation for the euro area," Journal of Economic Dynamics and Control, Elsevier, vol. 115(C).
    9. Yunho Cho & James Morley & Aarti Singh, 2024. "Did marginal propensities to consume change with the housing boom and bust?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(1), pages 174-199, January.
    10. Bilbiie, Florin O., 2020. "The New Keynesian cross," Journal of Monetary Economics, Elsevier, vol. 114(C), pages 90-108.
    11. Deniz Aydin, 2022. "Consumption Response to Credit Expansions: Evidence from Experimental Assignment of 45,307 Credit Lines," American Economic Review, American Economic Association, vol. 112(1), pages 1-40, January.
    12. Daniel Lewis & Davide Melcangi & Laura Pilossoph, 2019. "Latent Heterogeneity in the Marginal Propensity to Consume," 2019 Meeting Papers 519, Society for Economic Dynamics.
    13. Hong, Seungki, 2023. "MPCs in an emerging economy: Evidence from Peru," Journal of International Economics, Elsevier, vol. 140(C).
    14. Arna Olafsson & Michaela Pagel, 2018. "The Liquid Hand-to-Mouth: Evidence from Personal Finance Management Software," The Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4398-4446.
    15. Anna Sokolova, 2023. "Marginal Propensity to Consume and Unemployment: a Meta-analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 813-846, December.
    16. Matthew Rognlie & Adrien Auclert, 2016. "Inequality and Aggregate Demand," 2016 Meeting Papers 1353, Society for Economic Dynamics.
    17. Benjamin J. Keys & Tomasz Piskorski & Amit Seru & Vincent Yao, 2014. "Mortgage Rates, Household Balance Sheets, and the Real Economy," NBER Working Papers 20561, National Bureau of Economic Research, Inc.
    18. Somville, Vincent & Vandewalle, Lore, 2023. "Access to banking, savings and consumption smoothing in rural India," Journal of Public Economics, Elsevier, vol. 223(C).
    19. James Cloyne & Clodomiro Ferreira & Paolo Surico, 2020. "Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 102-129.
    20. Cameron LAPOINT & UNAYAMA Takashi, 2020. "Winners, Losers, and Near-Rationality: Heterogeneity in the MPC out of a Large Stimulus Tax Rebate," Discussion papers 20067, Research Institute of Economy, Trade and Industry (RIETI).

    More about this item

    Keywords

    marginal propensity to consume; household expenditure response; household heterogeneity; income shocks;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ssb:dispap:852. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: L Maasø (email available below). General contact details of provider: https://edirc.repec.org/data/ssbgvno.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.