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Estimating Marginal Propensities to Consume in Australia Using Micro Data

  • Laura Berger-Thomson

    (Reserve Bank of Australia)

  • Elaine Chung

    (Reserve Bank of Australia)

  • Rebecca McKibbin

    (Reserve Bank of Australia)

This paper uses micro data from the Household, Income and Labour Dynamics in Australia Survey to estimate the marginal propensity to consume. 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. A standard Euler equation for consumption is used to analyse the effect of income tax changes. The marginal propensity to consume out of lump-sum transfers is estimated using fixed effects and propensity score matching. In addition, the paper examines differences in the marginal propensity to consume across households according to measures of liquidity constraints and unemployment risks.

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Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2009-07.

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Date of creation: Nov 2009
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Handle: RePEc:rba:rbardp:rdp2009-07
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  1. Andrew Leigh, 2009. "How Much Did the 2009 Fiscal Stimulus Boost Spending? Evidence from a Household Survey," CAMA Working Papers 2009-22, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Warwick J. McKibbin & Anthony J. Richards, 1988. "Consumption and Permanent Income: The Australian Case," RBA Research Discussion Papers rdp8808, Reserve Bank of Australia.
  3. Joshua S. Gans & Andrew Leigh, 2006. "Born on the First of July: An (Un)natural Experiment in Birth Timing," CEPR Discussion Papers 529, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  4. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
  5. 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.
  6. Gianni La Cava & John Simon, 2003. "A Tale of Two Surveys: Household Debt and Financial Constraints in Australia," RBA Research Discussion Papers rdp2003-08, Reserve Bank of Australia.
  7. Matthew Brzozowski, 2007. "Welfare Reforms and Consumption among Single Mother Households: Evidence from Canadian Provinces," Canadian Public Policy, University of Toronto Press, vol. 33(2), pages 227-250, June.
  8. 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.
  9. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
  10. Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July.
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