Discussion Paper Details

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Title: Reported MPC and Unobserved Heterogeneity

Author(s): Tullio Jappelli and Luigi Pistaferri

Publication Date: October 2019

Keyword(s): marginal propensity to consume, panel data and Transitory Income Shocks

Programme Area(s): Macroeconomics and Growth

Abstract: Panel data on reported marginal propensity to consume (MPC) in the 2010 and 2016 Italy's Survey of Household Income and Wealth uncover a strong negative relationship between cash-on-hand and MPC. Even though the relationship is attenuated when using regression methods that control for unobserved heterogeneity, the amount of bias is moderate. MPC estimates are used to evaluate the effectiveness of revenue-neutral fiscal policies targeting different parts of the distribution of household resources.

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Bibliographic Reference

Jappelli, T and Pistaferri, L. 2019. 'Reported MPC and Unobserved Heterogeneity'. London, Centre for Economic Policy Research.