Income inequality tends to take precedence over consumption inequality but consumption inequality is lower and more stable, he added. Income shocks can lead to the spread of consumption inequality, and their impact is measured by the marginal propensity to consume (MPC). This is larger for low income people, and is a key tool for predicting households’ responses to redistributive fiscal policies and monetary policy, Professor Jappelli continued.
However, there is not one single MPC and it varies according to many factors (institutions, characteristics of credit and insurance markets, habits, nature of income shocks…). This heterogeneity has important implications for the effectiveness of fiscal policy, he concluded.
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