Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273725 
Authors: 
Year of Publication: 
2023
Series/Report no.: 
Deutsche Bundesbank Discussion Paper No. 13/2023
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
This paper studies how and why consumers respond to unexpected, transitory income shocks. In a randomized control trial, I elicit marginal propensities to consume (MPC) out of different hypothetical income shock scenarios, varying the payment mode, the shock size, and the source of income. The results show respondents exhibit a higher MPC when exposed to a windfall paid out in cash or without any specification of the payment mode, respectively, compared to a windfall deposited in an instant-access savings account, suggesting consumers violate fungibility. Further, the MPC falls with the shock size, whereas it does not vary with the source of income. Using causal machine learning methods to explore treatment heterogeneity, I find that low liquidity, self-control problems, and a lack of cognitive sophistication contribute to MPC heterogeneity. The results are broadly in line with mental accounting theory.
Subjects: 
Randomized control trial
marginal propensity to consume
fiscal policy
mental accounting
causal forest
JEL: 
C90
D12
D14
D15
D91
ISBN: 
978-3-95729-944-4
Document Type: 
Working Paper

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