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Marginal Propensity to Consume and Unemployment: a Meta-analysis

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  • Anna Sokolova

    (University of Nevada, Reno)

Abstract

This paper considers 1244 estimates of marginal propensities to consume (MPC) out of stimulus checks and other small transitory or predictable payments. The mean quarterly MPC estimate reported by the literature is .35, but estimates vary widely. I use meta-regressions to study sources of this variation. MPC estimates increase with the unemployment rate: at 4% unemployment MPC out of a $1200 stimulus check is about .22, while for unemployment of 8% it is around .4. MPC estimates decrease with the size of the payments. MPCs are lower for households holding ample liquidity. MPCs out of stimulus checks are higher than those out of some recurring payments. These results highlight the importance of considering state-dependent multipliers, liquidity constraints, two-asset models, near rationality, and mental accounting. (Copyright: Elsevier)

Suggested Citation

  • Anna Sokolova, 2023. "Marginal Propensity to Consume and Unemployment: a Meta-analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 813-846, December.
    • Handle: RePEc:red:issued:23-112
    DOI: 10.1016/j.red.2023.08.005
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    More about this item

    Keywords

    Consumption; household finance; marginal propensity to consume; fiscal stimulus; liquidity constraints;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • G4 - Financial Economics - - Behavioral Finance

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