Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300411 
Year of Publication: 
2024
Series/Report no.: 
cemmap working paper No. CWP13/24
Publisher: 
Centre for Microdata Methods and Practice (cemmap), London
Abstract: 
We estimate the unconditional distribution of the marginal propensity to consume (MPC) using clustering regression applied to the 2008 economic stimulus payments. By deviating from the standard approach of estimating MPC heterogeneity using interactions with observables, we can recover the full distribution of MPCs. We find households spent between 4 and 133% of the rebate within a quarter, and individual households used rebates for different goods. While many observable characteristics correlate individually with our estimated MPCs, these relationships disappear when tested jointly, except for income and the average propensity to consume. Household observable characteristics explain only 8% of MPC variation, highlighting the role of latent heterogeneity.
Subjects: 
Marginal Propensity to Consume
Consumption
Tax Rebate
Clustering
JEL: 
D12
E21
E62
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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