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Wealth Heterogeneity and the Marginal Propensity to Consume out of Wealth

Author

Listed:
  • Bertrand Garbinti

    (CREST-ENSAE-Institut Polytechnique Paris)

  • Pierre Lamarche

    (CREST-INSEE)

  • Fredérique Savignac

    (Banque de France)

Abstract

We study how the marginal propensity to consume out of wealth (MPC) varies across households depending on the level and composition of their wealth. We build a unique household-level panel dataset which combines wealth and consumption surveys for five European countries to estimate country-specific marginal propensity to consume out wealth. We use instrumented household-level panel regressions. First, we show that the MPC out of total wealth is higher for lowwealth households, whatever the country. Second, we find that the MPC out of housing assets is significant and decreasing along the wealth distribution in all countries. Third, we show that the observed cross-country heterogeneity in MPC is strongly correlated with the use of mortgages, suggesting a collateral channel. Finally, we conduct a simulation exercise to investigate to what extent heterogeneous MPC and wealth inequality affect consumption inequality.

Suggested Citation

  • Bertrand Garbinti & Pierre Lamarche & Fredérique Savignac, 2022. "Wealth Heterogeneity and the Marginal Propensity to Consume out of Wealth," Working Papers 2022-02, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2022-02
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    More about this item

    Keywords

    consumption; marginal propensity to consume out of wealth; collateral channel; household surveys;
    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
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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