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Estimating Marginal Propensities to Consume in Australia Using Micro Data

Author

Listed:
  • Laura Berger-Thomson

    (Reserve Bank of Australia)

  • Elaine Chung

    (Reserve Bank of Australia)

  • Rebecca McKibbin

    (Reserve Bank of Australia)

Abstract

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.

Suggested Citation

  • Laura Berger-Thomson & Elaine Chung & Rebecca McKibbin, 2009. "Estimating Marginal Propensities to Consume in Australia Using Micro Data," RBA Research Discussion Papers rdp2009-07, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2009-07
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    File URL: http://www.rba.gov.au/publications/rdp/2009/pdf/rdp2009-07.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July.
    4. Leigh Andrew, 2012. "How Much Did the 2009 Australian Fiscal Stimulus Boost Demand? Evidence from Household-Reported Spending Effects," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-24, March.
    5. 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.
    6. Gans, Joshua S. & Leigh, Andrew, 2009. "Born on the first of July: An (un)natural experiment in birth timing," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 246-263, February.
    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. Warwick J. McKibbin & Anthony J. Richards, 1988. "Consumption and Permanent Income: The Australian Case," RBA Research Discussion Papers rdp8808, Reserve Bank of Australia.
    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. 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.
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    Citations

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    Cited by:

    1. Christian Schoder, 2017. "An estimated Dynamic Stochastic Disequilibrium model of Euro-Area unemployment," Working Papers 1725, New School for Social Research, Department of Economics.
    2. Finlay Richard & Price Fiona, 2015. "Household saving in Australia," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(2), pages 677-704, July.
    3. Windsor, Callan & La Cava, Gianni & Hansen, James, 2015. "Home price beliefs: Evidence from Australia," Journal of Housing Economics, Elsevier, vol. 29(C), pages 41-58.
    4. Petr Jakubík, 2011. "Household Balance Sheets and Economic Crisis," Working Papers IES 2011/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jun 2011.
    5. Jakubik, Petr, 2011. "Households response to economic crisis," BOFIT Discussion Papers 7/2011, Bank of Finland, Institute for Economies in Transition.
    6. Richard Finlay & Fiona Price, 2014. "The Rise in Household Saving," RBA Bulletin, Reserve Bank of Australia, pages 1-10, June.
    7. Andrea Neri & Concetta Rondinelli & Filippo Scoccianti, 2017. "Household spending out of a tax rebate: Italian “€80 tax bonus”," Questioni di Economia e Finanza (Occasional Papers) 379, Bank of Italy, Economic Research and International Relations Area.
    8. Federica Teppa, 2014. "Consumption behaviour and financial crisis in the Netherlands," DNB Working Papers 453, Netherlands Central Bank, Research Department.
    9. Callan Windsor & Gianni La Cava & James Hansen, 2014. "Home Price Beliefs in Australia," RBA Research Discussion Papers rdp2014-04, Reserve Bank of Australia.

    More about this item

    Keywords

    marginal propensity to consume; panel data; HILDA;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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