MARGINAL PROPENSITY TO CONSUME
OUT OF A TRANSITORY SHOCK Suppose that after the initial portfolio allocation decision, but before the consumption decision at t = 1, the household receives an unexpected income shock, such as a transfer [tau] from the government.
0 Predicted expenditure (buyers only) $536 $503 Marginal propensity to consume
Furthermore, the nonlinearity of the impulse responses implies that the measured marginal propensity to consume
out of wealth will not be constant in this case.
7] They find that the marginal propensity to consume
all goods out of inheritance wealth is about .
The estimates of marginal propensity to consume
vary substantially across models as they depend on the particular measure of wealth that is included in the set of explanatory variables, on the measure of private consumption, on the data sample, and on the particular specification being estimated.
LONG-RUN RELATIONSHIPS: THE MARGINAL PROPENSITY TO CONSUME
OUT OF WEALTH
The Blundell, Pistaferri, and Preston (2008) estimator of the transmission coefficient of transitory income shocks to consumption, the marginal propensity to consume
(MPC), is given by
Further, we learn that the marginal propensity to consume
food out of food stamp income is close to the marginal propensity to consume
food out of cash income.
Poterba (2000) has suggested that the marginal propensity to consume
out of wealth may have declined in the 1990s.
These results should be kept in mind when one is interpreting such factors as the marginal propensity to consume
(MPC) and the (permanent) income elasticity of the selected expenditures.
Following the same line of reasoning as Chen , Barsky, Mankiw and Zeldes  as well as Kimball and Mankiw  make a persuasive argument that in an environment where future labor income is uncertain, the marginal propensity to consume
out of a deficit financed tax cut is significantly positive if future taxes are proportional to income.
The actual surplus from which debt service payments are made is determined mainly by two factors: (i) the productivity of capital, and (ii) the marginal propensity to consume