Low-income earners exhibit higher marginal propensities to consume due to liquidity constraints
Economic literature and empirical data consistently show that low-income earners have a higher marginal propensity to consume, largely driven by liquidity constraints and hand-to-mouth household dynamics.
The retrieved papers provide robust theoretical models and empirical evidence from various contexts (such as pandemic stimulus spending and heterogeneous agent macroeconomic models) showing that lower-income and liquidity-constrained households exhibit higher marginal propensities to consume. No papers refute the claim.
Greg Kaplan, Giovanni L. Violante. The Marginal Propensity to Consume in Heterogeneous Agent Models. 2022. https://doi.org/10.1146/annurev-economics-080217-053444
Demonstrates through heterogeneous agent models that hand-to-mouth households with liquidity constraints drive high average marginal propensities to consume.
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Goldfayn-Frank O, Lewis V, Wehrhöfer N. Spending Effects of Child-Related Fiscal Transfers. 2022. https://doi.org/10.2139/ssrn.4201916
Finds empirical evidence that spending effects from fiscal transfers are significantly higher for low-income and liquidity-constrained households.
Jeon W, Walsh KJ. Heterogeneity in the Spending Response to Stimulus: Evidence from the Pulse Survey. 2023. https://doi.org/10.2139/ssrn.4441137
Shows that liquidity constraints bind poorer households during crises, leading them to exhibit a high propensity to spend stimulus payments.
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