Working Paper: CEPR ID: DP18676
Authors: Johannes Boehm; Etienne Fize; Xavier Jaravel
Abstract: We conduct a randomized controlled trial to study the consumption response of French households to unanticipated one-time money transfers of 300 Euros. Using prepaid debit cards, we consider three implementation designs: (i) a transfer without restrictions; (ii) a transfer where any unspent value expires after three weeks; (iii) a transfer subject to a 10% negative interest rate every week. We observe the participants' main bank accounts, such that we can compute the impact of the transfer on their overall spending. We establish five facts about MPCs in this setting. First, we find that participants in the baseline treatment group have an average marginal propensity to consume (MPC) of 23% over one month. Second, we find that implementation design matters: the one-month MPC is substantially higher for treatment groups where any remaining balance becomes unusable after three weeks (61%) or where remaining balances are subject to the 10% negative interest rate every week (35%). Third, we document that the cumulative consumption responses are concentrated in the first weeks following the transfer and are flat thereafter. Fourth, we find that there is significant MPC heterogeneity by observed household characteristics, including by liquid wealth, current income, proxies for permanent income, and gender; the MPC remains high even for agents with high liquid wealth. Fifth, we estimate the unconditional distribution of MPCs across households and find that a large fraction of households have high MPCs. These facts are difficult to reconcile with the consumption response in standard Heterogeneous Agent New Keynesian models, which is long-lived and driven by households with little liquid wealth. Furthermore, we observe that households in the treatment groups with a short expiry date or a negative interest rate frequently use other means of payment while still having a sufficient balance on the prepaid card to cover their expenses, indicating that participants see money as non-fungible. Our finding that households consume more when presented with an urgent spending need lends support to theories where the salience of treatments affects economic choices. We conclude that implementation design and the targeting of transfers can greatly alter the effectiveness of stimulus policies.
Keywords: Marginal Propensity to Consume; Randomized Controlled Trial; Helicopter Money
JEL Codes: D12; E21; C93; D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Implementation of monetary transfers (E42) | Marginal propensity to consume (MPC) (E21) |
| Expiration of funds (G23) | Marginal propensity to consume (MPC) (E21) |
| Negative interest rate (E43) | Marginal propensity to consume (MPC) (E21) |
| Urgency created by transfer design (F16) | Consumption response (D12) |
| Household characteristics (D19) | Marginal propensity to consume (MPC) (E21) |
| Liquid wealth, income, and gender (D31) | Marginal propensity to consume (MPC) (E21) |
| Initial weeks post-transfer (F16) | Consumption response (D12) |
| High MPCs (E49) | Wealthier households (G59) |