Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009)

J.R. Campbell, Zvi Hercowitz

Research output: Working paperDiscussion paperOther research output

680 Downloads (Pure)

Abstract

Existing evidence from U.S. middle-class households shows that their MPCs out of tax rebates greatly exceed the PIH's prediction and are weakly related to their liquid assets. The standard precautionary-saving model predicts the first fact but counterfactually requires MPCs to decrease with liquid wealth. Evidence from the Survey of Consumer Finances indicates widespread saving in anticipation of major expenditures like home purchases and college education. Adding such savings to the standard precautionary-saving model allows it to generate realistic MPCs for households with liquid wealth: The approaching expenditure simultaneously motivates asset accumulation and raises MPCs by shortening the effective planning horizon.
Original languageEnglish
Place of PublicationTilburg
PublisherDepartment of Econometrics
Number of pages36
Volume2018-039
Publication statusPublished - 17 Sep 2018

Publication series

NameCentER Discussion Paper
Volume2018-039

Fingerprint

Middle class
Wealth
Household
Assets
Liquidity constraints
Precautionary saving
Expenditure
Anticipation
Prediction
Tax
Consumer finance
Education
Purchase
Planning
Savings
Rebates

Keywords

  • fiscal policy
  • tax rebates
  • marginal propensity to consume
  • term saving
  • precautionary saving

Cite this

Campbell, J. R., & Hercowitz, Z. (2018). Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009). (CentER Discussion Paper; Vol. 2018-039). Tilburg: Department of Econometrics.
Campbell, J.R. ; Hercowitz, Zvi. / Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009). Tilburg : Department of Econometrics, 2018. (CentER Discussion Paper).
@techreport{3ac40903deab40a3984713d92133592c,
title = "Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009)",
abstract = "Existing evidence from U.S. middle-class households shows that their MPCs out of tax rebates greatly exceed the PIH's prediction and are weakly related to their liquid assets. The standard precautionary-saving model predicts the first fact but counterfactually requires MPCs to decrease with liquid wealth. Evidence from the Survey of Consumer Finances indicates widespread saving in anticipation of major expenditures like home purchases and college education. Adding such savings to the standard precautionary-saving model allows it to generate realistic MPCs for households with liquid wealth: The approaching expenditure simultaneously motivates asset accumulation and raises MPCs by shortening the effective planning horizon.",
keywords = "fiscal policy, tax rebates, marginal propensity to consume, term saving, precautionary saving",
author = "J.R. Campbell and Zvi Hercowitz",
note = "CentER Discussion Paper No. 2018-039",
year = "2018",
month = "9",
day = "17",
language = "English",
volume = "2018-039",
series = "CentER Discussion Paper",
publisher = "Department of Econometrics",
type = "WorkingPaper",
institution = "Department of Econometrics",

}

Campbell, JR & Hercowitz, Z 2018 'Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009)' CentER Discussion Paper, vol. 2018-039, Department of Econometrics, Tilburg.

Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009). / Campbell, J.R.; Hercowitz, Zvi.

Tilburg : Department of Econometrics, 2018. (CentER Discussion Paper; Vol. 2018-039).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009)

AU - Campbell, J.R.

AU - Hercowitz, Zvi

N1 - CentER Discussion Paper No. 2018-039

PY - 2018/9/17

Y1 - 2018/9/17

N2 - Existing evidence from U.S. middle-class households shows that their MPCs out of tax rebates greatly exceed the PIH's prediction and are weakly related to their liquid assets. The standard precautionary-saving model predicts the first fact but counterfactually requires MPCs to decrease with liquid wealth. Evidence from the Survey of Consumer Finances indicates widespread saving in anticipation of major expenditures like home purchases and college education. Adding such savings to the standard precautionary-saving model allows it to generate realistic MPCs for households with liquid wealth: The approaching expenditure simultaneously motivates asset accumulation and raises MPCs by shortening the effective planning horizon.

AB - Existing evidence from U.S. middle-class households shows that their MPCs out of tax rebates greatly exceed the PIH's prediction and are weakly related to their liquid assets. The standard precautionary-saving model predicts the first fact but counterfactually requires MPCs to decrease with liquid wealth. Evidence from the Survey of Consumer Finances indicates widespread saving in anticipation of major expenditures like home purchases and college education. Adding such savings to the standard precautionary-saving model allows it to generate realistic MPCs for households with liquid wealth: The approaching expenditure simultaneously motivates asset accumulation and raises MPCs by shortening the effective planning horizon.

KW - fiscal policy

KW - tax rebates

KW - marginal propensity to consume

KW - term saving

KW - precautionary saving

M3 - Discussion paper

VL - 2018-039

T3 - CentER Discussion Paper

BT - Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009)

PB - Department of Econometrics

CY - Tilburg

ER -

Campbell JR, Hercowitz Z. Liquidity Constraints of the Middle Class (revision of CentER DP 2015-009). Tilburg: Department of Econometrics. 2018 Sep 17. (CentER Discussion Paper).