The marginal propensity to consume (MPC) one of the most studied objects in economics. However, survey questions with different structures and wording appear to elicit very different MPC estimates. In this paper, we report on an experiment in which households were randomly assigned different questions designed to elicit their MPCs out of hypothetical payments. We also examine how responses vary according to the size of the payments and the duration over which households are asked to report their spending changes. We find that the wording of the question can have dramatic effects on measured MPCs, their relationship with liquidity and how MPCs differ according to the size of payments. The experiment was fielded in the Understanding Society Innovation Panel.

Co-authors

Dr Peter Levell, Institute for Fiscal Studies;

Dr Paul Fisher, University of Essex;

Professor Hamish Low, University of Oxford