Financial Concerns and the Marginal Propensity to Consume in COVID Times: Evidence from UK Survey Data

Abstract

We study how household concerns about their future financial situation may affect the marginal propensity to consume (MPC) during the COVID-19 pandemic. We use a representative survey of UK households to compute the MPC from a hypothetical transfer of £500. Our main finding points to a key role played by household expectations in determining differences in MPCs across households: those who are concerned about not being able to pay their usual bills and expenses in three months have an MPC that is more than 20% higher than households who are not concerned. Our findings suggest that policies that provide targeted support to households who are more vulnerable to becoming financially distressed may prove more effective in stimulating demand than providing stimulus payments to all households.