MPC Heterogeneity and Household Balance Sheets

Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 4

66 Pages Posted: 31 Dec 2018

See all articles by Andreas Fagereng

Andreas Fagereng

BI Norwegian Business School; Statistics Norway

Martin Blomhoff Holm

University of Oslo

Gisle James James Natvik

BI Norwegian Business School - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: June 2018

Abstract

We use sizeable lottery prizes in Norwegian administrative panel data to characterize households' marginal propensities to consume (MPCs). Our main contribution is to document how MPCs vary with household characteristics and prize size, and how lottery prizes are spent and saved over time. We find that spending spikes in the year of winning, and reverts to normal within 5 years. Controlling for all items on households' balance sheets and characteristics such as education and income, it is the amount won, age and liquid assets that vary systematically with MPCs. Low-liquidity winners of the smallest prizes (around USD 1,500) are estimated to spend all within the year of winning. The same estimate for high-liquidity winners of large prizes (USD 8,300 - 150,000) is slightly below one half. While the consumption responses we find are high, their systematic relations with observables point toward well-understood mechanisms from existing theory and should be useful to quantify structural models.

Keywords: marginal propensity to consume, household heterogeneity, income shocks

JEL Classification: D12, D14, D91, E21

Suggested Citation

Fagereng, Andreas and Holm, Martin Blomhoff and Natvik, Gisle James James, MPC Heterogeneity and Household Balance Sheets (June 2018). Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 4, Available at SSRN: https://ssrn.com/abstract=3300590 or http://dx.doi.org/10.2139/ssrn.3300590

Andreas Fagereng (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Statistics Norway ( email )

Postboks 8131 Dep, 0033 Oslo
Oslo, Oslo 0033
Norway
+47 2109 4700 (Phone)

HOME PAGE: http://sites.google.com/site/andreasfagereng/

Martin Blomhoff Holm

University of Oslo ( email )

Moltke Moes Vei 31
Oslo, 0851
Norway

Gisle James James Natvik

BI Norwegian Business School - Department of Economics ( email )

Nydalsveien 37
Oslo, 0484
Norway

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