Working Paper: NBER ID: w24262
Authors: Marco Di Maggio; Amir Kermani; Kaveh Majlesi
Abstract: This paper employs Swedish data on households' stock holdings to investigate how consumption responds to changes in stock market returns. We instrument the actual capital gains and dividend payments with past portfolio weights. Unrealized capital gains lead to a marginal propensity to consume (MPC) of 23% for the bottom 50% of the wealth distribution and about 3% for the top 30% of the wealth distribution. Households’ consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are consistent with households treating capital gains and dividends as separate sources of income.
Keywords: Consumption; Stock Market Returns; Marginal Propensity to Consume; Household Wealth
JEL Codes: E21; G02; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| differences in consumption responses to capital gains and dividends (E21) | near-rational behavior (D01) |
| unrealized capital gains (H24) | marginal propensity to consume (MPC) for bottom 50% of wealth distribution (E21) |
| unrealized capital gains (H24) | marginal propensity to consume (MPC) for top 30% of wealth distribution (E21) |
| dividend payouts (G35) | marginal propensity to consume (MPC) across all wealth groups (E21) |
| capital gains (H24) | marginal propensity to consume (MPC) (E21) |