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The Marginal Propensity to Earn and Consume out of Unearned Income: Evidence Using an Unusually Large Cash Grant Reform

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  • Niklas Bengtsson

Abstract

We use a rapid introduction of an unconditional cash grant (child support) in South Africa to estimate the marginal propensity to consume and earn out of unearned income. We find that the marginal propensity to earn is about –0.3 and the marginal propensity to consume about 0.7. Nothing of the grant appears to be saved; if anything, households dissave against future grant payments. The marginal propensities estimated here are similar to those reported in comparable papers using US data. However, they stand in contrast to some results on conditional cash transfers in other developing countries.
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Suggested Citation

  • Niklas Bengtsson, 2012. "The Marginal Propensity to Earn and Consume out of Unearned Income: Evidence Using an Unusually Large Cash Grant Reform," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1393-1413, December.
    • Handle: RePEc:bla:scandj:v:114:y:2012:i:4:p:1393-1413
    DOI: j.1467-9442.2012.01726.x
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    Cited by:

    1. Mikhail Golosov & Michael Graber & Magne Mogstad & David Novgorodsky, 2024. "How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 139(2), pages 1321-1395.
    2. David Cesarini & Erik Lindqvist & Matthew J. Notowidigdo & Robert Östling, 2017. "The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries," American Economic Review, American Economic Association, vol. 107(12), pages 3917-3946, December.
    3. Bahn, Dorothée & Bredemeier, Christian & Juessen, Falko, 2025. "Household chores, taxes, and the labor-supply elasticities of women and men," Ruhr Economic Papers 1177, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Georgarakos, Dimitris & Jappelli, Tullio & Kenny, Geoff & Pistaferri, Luigi, 2025. "Labor supply response to windfall gains," Journal of Public Economics, Elsevier, vol. 250(C).
    5. Helena Ting & Martina Bozzola & Timothy Swanson, 2020. "Evaluating the propensity to save in South Africa using weather-income relationship," CIES Research Paper series 49-2017, Centre for International Environmental Studies, The Graduate Institute.

    More about this item

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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