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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.

Suggested Citation

  • LAURA BERGER‐THOMSON & ELAINE CHUNG & REBECCA McKIBBIN, 2010. "Estimating Marginal Propensities to Consume in Australia Using Micro Data," The Economic Record, The Economic Society of Australia, vol. 86(s1), pages 49-60, September.
    • Handle: RePEc:bla:ecorec:v:86:y:2010:i:s1:p:49-60
    DOI: 10.1111/j.1475-4932.2010.00660.x
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    References listed on IDEAS

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    1. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
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    7. 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.
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    9. Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July.
    10. 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.
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    Cited by:

    1. Alexander Ballantyne & Tom Cusbert & Richard Evans & Rochelle Guttmann & Jonathan Hambur & Adam Hamilton & Elizabeth Kendall & Rachael McCririck & Gabriela Nodari & Daniel M. Rees, 2020. "MARTIN Has Its Place: A Macroeconometric Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 96(314), pages 225-251, September.
    2. Federica Teppa, 2014. "Consumption behaviour and financial crisis in the Netherlands," DNB Working Papers 453, Netherlands Central Bank, Research Department.
    3. Andrea Neri & Concetta Rondinelli & Filippo Scoccianti, 2017. "Household spending out of a tax rebate: Italian ��80 tax bonus�," Questioni di Economia e Finanza (Occasional Papers) 379, Bank of Italy, Economic Research and International Relations Area.
    4. Neri, Andrea & Rondinelli, Concetta & Scoccianti, Filippo, 2017. "Household spending out of a tax rebate: Italian “€80 tax bonus”," Working Paper Series 2099, European Central Bank.
    5. Jonathan Kearns & Mike Major & David Norman, 2021. "How Risky Is Australian Household Debt?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(3), pages 313-330, September.
    6. Jakubik, Petr, 2011. "Households response to economic crisis," BOFIT Discussion Papers 7/2011, Bank of Finland, Institute for Economies in Transition.
    7. Finlay Richard & Price Fiona, 2015. "Household saving in Australia," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(2), pages 677-704, July.
    8. Christian Schoder, 2017. "An estimated Dynamic Stochastic Disequilibrium model of Euro-Area unemployment," Working Papers 1725, New School for Social Research, Department of Economics.
    9. repec:zbw:bofitp:2011_007 is not listed on IDEAS
    10. Windsor, Callan & La Cava, Gianni & Hansen, James, 2015. "Home price beliefs: Evidence from Australia," Journal of Housing Economics, Elsevier, vol. 29(C), pages 41-58.
    11. Kim, Daehwan & Nilsen, Jeffrey, 2021. "Testing the presence of borrowing constraints from consumption responses to housing deposit changes," Journal of Asian Economics, Elsevier, vol. 74(C).
    12. Callan Windsor & Gianni La Cava & James Hansen, 2014. "Home Price Beliefs in Australia," RBA Research Discussion Papers rdp2014-04, Reserve Bank of Australia.
    13. Richard Finlay & Fiona Price, 2014. "The Rise in Household Saving," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 1-10, June.
    14. Jakubik, Petr, 2011. "Households response to economic crisis," BOFIT Discussion Papers 7/2011, Bank of Finland Institute for Emerging Economies (BOFIT).
    15. Savoia, Ettore, 2023. "The effects of labor income risk heterogeneity on the marginal propensity to consume," Working Paper Series 2866, European Central Bank.
    16. 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.

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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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