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The Marginal Propensity to Earn and Consume out of Unearned Income: Evidence Using an Unusually Large Cash Grant Reform *
Author(s) -
Bengtsson Niklas
Publication year - 2012
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2012.01726.x
Subject(s) - marginal propensity to consume , economics , unearned income , cash , cash transfers , public economics , monetary economics , finance , gross income , market liquidity , tax reform , state income tax
In this paper, we use the rapid introduction of an unconditional cash grant (child support) in South Africa to estimate the marginal propensity to consume and earn out of unearned income. We find that the marginal propensity to earn is about −0.3 and that the marginal propensity to consume is about 0.7. Nothing of the grant appears to be saved; if anything, households dissave against future grant payments. The marginal propensities estimated here are similar to those reported in comparable papers using US data. However, they stand in contrast to some results on conditional cash transfers in other developing countries.