Financial Concerns and the Marginal Propensity to Consume in COVID Times: Evidence from UK Survey Data

Abstract

We study how household concerns about their future financial situation may affect the marginal propensity to consume (MPC) during the COVID-19 pandemic. We use a representative survey of UK households to compute the MPC from a hypothetical transfer of £500. We find that household expectations play a key role in determining differences in MPCs across households: households concerned about not being able to make ends meet have a 20% higher MPC than other households. Our findings suggest that policies targeted to vulnerable and financially distressed households may prove more effective in stimulating demand than providing stimulus payments to all households.

Keywords: COVID-19, Marginal propensity to consume, Survey data, Household behaviour, Expectations, Financial concerns, Fiscal policy., representative survey, marginal propensity to consume in COVID times, household expectation, elicited MPC, MPC question, COVID survey, household income, spending normalisation effect, Income shocks, Income, Consumption, Unemployment

JEL Classification: D12, E21, E62, H31, E25, I12, J64