DP14083 Reported MPC and Unobserved Heterogeneity

Author(s): Tullio Jappelli, Luigi Pistaferri
Publication Date: October 2019
Keyword(s): marginal propensity to consume, panel data, Transitory Income Shocks
JEL(s): D12, D14, E21
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14083

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.