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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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  • Bengtsson, Niklas

    (Uppsala Center for Labor Studies)

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.

Suggested Citation

  • Bengtsson, Niklas, 2011. "The marginal propensity to earn and consume out of unearned income: Evidence using an unusually large cash grant reform," Working Paper Series, Center for Labor Studies 2011:7, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uulswp:2011_007
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    References listed on IDEAS

    as
    1. Jorge M. Aguero & Michael R. Carter & Ingrid Woolard, 2006. "The Impact of Unconditional Cash Transfers on Nutrition: The South African Child Support Grant," SALDRU Working Papers 8, Southern Africa Labour and Development Research Unit, University of Cape Town.
    2. Bound, John & Brown, Charles & Mathiowetz, Nancy, 2001. "Measurement error in survey data," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 59, pages 3705-3843, Elsevier.
    3. Derek Yu, 2008. "The comparability of Income and Expenditure Surveys 1995, 2000 and 2005/2006," Working Papers 11/2008, Stellenbosch University, Department of Economics.
    4. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 143-156, Fall.
    5. repec:eee:labchp:v:1:y:1986:i:c:p:3-102 is not listed on IDEAS
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    Cited by:

    1. Dimitris Georgarakos & Tullio Jappelli & Geoff Kenny & Luigi Pistaferri, 2023. "Labor Supply Response to Windfall Gains," CSEF Working Papers 682, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    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. 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.
    4. Mikhail Golosov & Michael Graber & Magne Mogstad & David Novgorodsky, 2021. "How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income," NBER Working Papers 29000, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Child support; Labor supply; Robust regression; Least absolute deviation; South Africa;
    All these keywords.

    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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