We find evidence supportive of heterogeneity in the MPC by household income and leverage. For example, the MPC for households living in zip codes with an average annual income of less than $35 thousand is three times as large as the MPC for households living in zip codes with more than $200 thousand in average income. Similarly, zip codes that entered the Great Recession with a housing loan-to-value (LTV) ratio of 90% had an MPC out of housing wealth that was three times as large as the MPC of households living in zip codes with only a 30% housing LTV ratio. Taken together, these results show that the distribution of wealth losses matters, not just the level.
From Mian, Rao, & Sufi. There are many other interesting aspects of the paper. To get a better sense of what they do, here’s the abstract:
We investigate the consumption consequences of the 2006 to 2009 housing collapse using the highly unequal geographic distribution of wealth losses across the United States. We estimate a large elasticity of consumption with respect to housing net worth of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk-sharing. The average marginal propensity to consume (MPC) out of housing wealth is 5 to 7 cents with substantial heterogeneity across zip codes. Zip codes with poorer and more levered households have a significantly higher MPC out of housing wealth. In line with the MPC result, zip codes experiencing larger wealth losses, particularly those with poorer and more levered households, experience a larger reduction in credit limits, refinancing likelihood, and credit scores. Our findings highlight the role of debt and the geographic distribution of wealth shocks in explaining the large and unequal decline in consumption from 2006 to 2009.