The Marginal Propensity to Consume during the COVID-19 Pandemic: Evidence from Thailand and Vietnam

8 Pages Posted: 18 Aug 2022

See all articles by Dzung Bui

Dzung Bui

University of Marburg

Lena Dräger

Leibniz University Hannover

Bernd Hayo

University of Marburg - School of Business & Economics

Giang Nghiem

Leibniz Institute for Financial Research SAFE; Leibniz Universität Hannover

Date Written: August 17, 2022

Abstract

In evaluating surveys conducted in Thailand and Vietnam during the COVID-19 pandemic, we find that the marginal propensity to consume is significantly larger for positive than for negative income shocks. This result contradicts a prediction from the lifecycle permanent income model with borrowing constraints as well as empirical evidence from industrialized countries. However, our finding is consistent with Kahneman and Tversky’s prospect theory, according to which the combination of income uncertainty and loss aversion can induce households to react more strongly to positive than to negative shocks.

Keywords: Marginal propensity to consume (MPC), Unanticipated income shocks, COVID-19, Thailand, Vietnam

JEL Classification: E62, E71, D12, D83, H31

Suggested Citation

Bui, Dzung and Dräger, Lena and Hayo, Bernd and Nghiem, Giang and Nghiem, Giang, The Marginal Propensity to Consume during the COVID-19 Pandemic: Evidence from Thailand and Vietnam (August 17, 2022). Available at SSRN: https://ssrn.com/abstract=4192794 or http://dx.doi.org/10.2139/ssrn.4192794

Dzung Bui

University of Marburg ( email )

Universitätsstrasse 24
D-35032 Marburg, D-35032
Germany

Lena Dräger

Leibniz University Hannover ( email )

Königsworther Platz 1
Hannover, 30167
Germany

Bernd Hayo (Contact Author)

University of Marburg - School of Business & Economics ( email )

Universitaetsstr. 24
Marburg, D-35032
Germany
++49(0)6421-28-23091 (Phone)
++49(0)6421-28-23193 (Fax)

Giang Nghiem

Leibniz Universität Hannover ( email )

Königsworther Platz 1
Hannover, 30167
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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