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Estimating Marginal Propensities to Consume in Australia Using Micro Data

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  • LAURA BERGER-THOMSON
  • ELAINE CHUNG
  • REBECCA McKIBBIN

Abstract

This paper uses micro data from the Household, Income and Labour Dynamics in Australia Survey to estimate the marginal propensity to consume (MPC). Estimates are made by examining two types of policy changes - to income tax rates and lump-sum transfers - which help to identify the effect of shocks to income on consumption. Using a fixed effects model the point estimate of MPC out of the tax cuts is around 1.0 and out of the Baby Bonus is at least 0.1. The paper also explores differences in the MPC across households according to measures of liquidity constraints and unemployment risks. Copyright © 2010 The Economic Society of Australia.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 86 (2010)
Issue (Month): s1 (09)
Pages: 49-60

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Handle: RePEc:bla:ecorec:v:86:y:2010:i:s1:p:49-60

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  1. Gans, Joshua S. & Leigh, Andrew, 2009. "Born on the first of July: An (un)natural experiment in birth timing," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 246-263, February.
  2. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
  3. Andrew Leigh, 2009. "How Much Did the 2009 Fiscal Stimulus Boost Spending? Evidence from a Household Survey," CAMA Working Papers 2009-22, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Lusardi, Annamaria, 1996. "Permanent Income, Current Income, and Consumption: Evidence from Two Panel Data Sets," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 81-90, January.
  5. Matthew Brzozowski, 2007. "Welfare Reforms and Consumption among Single Mother Households: Evidence from Canadian Provinces," Canadian Public Policy, University of Toronto Press, vol. 33(2), pages 227-250, June.
  6. David S. Johnson & Jonathan A. Parker & Nicholas S. Souleles, 2004. "Household Expenditure and the Income Tax Rebates of 2001," NBER Working Papers 10784, National Bureau of Economic Research, Inc.
  7. Warwick J. McKibbin & Anthony J. Richards, 1988. "Consumption and Permanent Income: The Australian Case," RBA Research Discussion Papers rdp8808, Reserve Bank of Australia.
  8. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
  9. Gianni La Cava & John Simon, 2003. "A Tale of Two Surveys: Household Debt and Financial Constraints in Australia," RBA Research Discussion Papers rdp2003-08, Reserve Bank of Australia.
  10. Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July.
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Cited by:
  1. Callan Windsor & Gianni La Cava & James Hansen, 2014. "Home Price Beliefs in Australia," RBA Research Discussion Papers rdp2014-04, Reserve Bank of Australia.
  2. Petr Jakubík, 2011. "Household Balance Sheets and Economic Crisis," Working Papers IES 2011/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2011.
  3. Richard Finlay & Fiona Price, 2014. "Household Saving in Australia," RBA Research Discussion Papers rdp2014-03, Reserve Bank of Australia.

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