Household Responses To Changes In Income

This is technical, but very useful for those of us having to analyse the Malaysian economy (abstract):

The Marginal Propensity to Consume across Household Income Groups
Dhruva Murugasu, Ang Jian Wei, Tng Boon Hwa

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.

For those not familiar with the terminology, the MPC is basically a ratio of how much is spent from an extra Ringgit of income. For instance, as quoted above, 81% of an additional Ringgit of income is spent for households earning below RM1,000 (full results are available on page 11). Note that this is the marginal propensity to consume, not the average, which would be considerably higher.

In any case, props to BNM for publishing, and can we have more papers like this please?

Technical Notes:

Dhruva Murugasu, Ang Jian Wei, Tng Boon Hwa, "The Marginal Propensity to Consume across Household Income Groups", Bank Negara Malaysia Working Paper Series WP2/2013, December 2013 (warning: pdf link)