Less is more: consumer spending and the size of economic stimulus payments
Subject
Economics
Publishing details
CEPR discussion paper
Authors / Editors
Andreolli M; Surico P
Biographies
Publication Year
2021
Abstract
We study the consumption response to unanticipated transitory income gains of different size, using hypothetical questions from the Italian Survey of Household Income and Wealth. Families with low cash-on-hand display a higher Marginal Propensity to Consume (MPC) out of small gains while affluent households exhibit a higher MPC out of large gains. The spending behaviour of low-income families is consistent with the presence of borrowing constraints whereas the consumption pattern of top earners can be accounted for by non-homothetic preferences on non-essential goods and services. Our results suggest that, for a given level of public spending, a fiscal transfer of smaller size paid to a larger base of low-income households leads to a significantly larger increase in aggregate consumption than a larger transfer paid to a smaller base.
Series Number
DP15918
Series
CEPR discussion paper