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Financial Concerns and the Marginal Propensity to Consume in COVID Times: Evidence from UK Survey Data

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  • Bruno Albuquerque
  • Georgina Green

Abstract

We study how household concerns about their future financial situation may affect the marginal propensity to consume (MPC) during the COVID-19 pandemic. We use a representative survey of UK households to compute the MPC from a hypothetical transfer of £500. We find that household expectations play a key role in determining differences in MPCs across households: households concerned about not being able to make ends meet have a 20% higher MPC than other households. Our findings suggest that policies targeted to vulnerable and financially distressed households may prove more effective in stimulating demand than providing stimulus payments to all households.

Suggested Citation

  • Bruno Albuquerque & Georgina Green, 2022. "Financial Concerns and the Marginal Propensity to Consume in COVID Times: Evidence from UK Survey Data," IMF Working Papers 2022/047, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2022/047
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    Cited by:

    1. Victoria Baudisch & Matthias Neuenkirch, 2023. "Costly, but (Relatively) Ineffective? An Assessment of Germany’s Temporary VAT Rate Reduction During the Covid-19 Pandemic," Research Papers in Economics 2023-04, University of Trier, Department of Economics.
    2. Gert Peersman & Joris Wauters, 2022. "Heterogeneous household responses to energy price shocks," Working Paper Research 416, National Bank of Belgium.

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    More about this item

    Keywords

    COVID-19; Marginal propensity to consume; Survey data; Household behaviour; Expectations; Financial concerns; Fiscal policy.; representative survey; marginal propensity to consume in COVID times; household expectation; elicited MPC; MPC question; COVID survey; household income; spending normalisation effect; Income shocks; Income; Consumption; Unemployment;
    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
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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