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 The Islamic Chamber of Commerce , Industry and Agriculture (ICCIA)

The Marginal Propensity to Consume across Household Income Groups

Source : Dhruva Murugasu, Ang Jian Wei, Tng Boon Hwa

Category : Finance

Publish Date : December 31, 2013

ABOUT PUBLICATION

Understanding heterogeneity in the way households respond to income changes is crucial for policymaking, as shocks in the economy often affect specific groups of households differently. Using data from the Household Expenditure Survey (HES), this paper estimates the marginal propensity to consume (MPC) out of disposable income for Malaysian households and examines how the propensities differ across income brackets. We find evidence that the MPC out of disposable income for lower income households is higher than that for higher income households. The MPCs vary from 0.81 for those earning below RM1,000 to 0.25 for those earning above RM10,000. These MPCs allow policymakers in Malaysia to estimate more precisely the aggregate consumption effects of income shocks that affect households of specific income groups.

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