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MPC out of Augmented Wealth in Poland

Author

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  • Janusz Jabłonowski

    (SGH Warsaw School of Economics)

Abstract

The study attempts to link the descriptive economics with the theoretical model of permanent income and life cycle hypothesis (PILCH) to shed some light on a low private savings rate for Polish households. These may be explained by the households’ belief that the public pension are a collateral to borrow against, which could discourage the buffer stock effect. The study comprises two research fields: 1) the estimation of so called augmented wealth, and, 2) the marginal propensity to consume (MPC) out of different types of wealth with the permanent income model. The mean augmented wealth (i.e. net wealth plus public pension wealth) per household in PLN amounted to 705 thousands, consisting of public pension wealth of 388 thousands and net wealth of 415 thousands. The model perfectly matches the augmented wealth Lorenz curve. The average MPC out of all types of wealth reaches 10% on average, ranging 6–20%, with a negative MPC to wealth correlation, and 60% of hand-to-mouth households. The explanation for this perfect match may stem from a high wage growth (also public pension contributions wedge) that that builds the public pension wealth. The Ricardian-type households may then mentally account the future pensions as a collateral (fiduciary money) for current high MPC, which may implicate crowding out their propensity to save for retirement privately.

Suggested Citation

  • Janusz Jabłonowski, 2021. "MPC out of Augmented Wealth in Poland," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 13(3), pages 253-286, September.
  • Handle: RePEc:psc:journl:v:13:y:2021:i:3:p:253-286
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    References listed on IDEAS

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    More about this item

    Keywords

    marginal propensity to consume; crowding out private savings; augmented wealth;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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