Fiscal Policy and MPC Heterogeneity

Tullio Jappelli and Luigi Pistaferri have a recent paper called Fiscal Policy and MPC Heterogeneity. Here’s an interesting figure from it that shows how MPC varies by cash-on-hand:

MPC

They aren’t the only ones who document MPC heterogeneity. Dynan, Skinner, Zeldes  have a nice JPE 2004 paper on this and so does Parker (AER 1999).

So why does this matter? As Tullio Jappelli and Luigi Pistaferri put it:

the results have important implications for the evaluation of fiscal policy, and for predicting household responses to tax reforms and redistributive policies. In particular, we find that a debt-financed increase in transfers of 1 percent of national disposable income targeted to the bottom decile of the cash-on-hand distribution would increase aggregate consumption by 0.82 percent.  

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About ozidar

Graduate student at UC Berkeley, studying public finance & labor economics. https://sites.google.com/site/omzidar/
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2 Responses to Fiscal Policy and MPC Heterogeneity

  1. Pingback: ‘Fiscal Policy and MPC Heterogeneity’ | Fifth Estate

  2. It also shows that you can have a huge amount of deficit neutral stimulus, by taxing those with a low marginal propensity to consume (the wealthy) and spending the money, like on high social return investment, or putting it into the safety net. There are economists who have talked about this going back to the Great Depression. See, for example:

    http://www.newrepublic.com/article/economy/94275/shiller-infrastructure-debt-stimulus#

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