Michele Andreolli, Paolo Surico, 29 April 2021

What is the consumption response to unexpected transitory income gains of different size and what are the aggregate demand implications of stimulus packages that target different segments of the population? This column explores these questions using responses to hypothetical questions in the Italian Survey of Household Income and Wealth. Families with low cash-at-hand display a higher marginal propensity to consume out of small gains, while affluent households exhibit a higher marginal propensity to consume out of large gains. For a given level of public spending, a fiscal transfer of a smaller size paid to a larger group of low-income households stimulates aggregate consumption more than a larger transfer paid to a smaller group.

Tohid Atashbar, 13 April 2020

There is a growing trend as well as increasing public pressure in developing or emerging economies to follow the US and EU-led approaches to dealing with the coronavirus pandemic, without considering local economic settings. This imitation may lead to a worsening of the situation, especially if the pandemic were to last for a longer period of time. This column proposes a framework for a safer policymaking approach, especially for countries with a tighter policy space. Policy responses should be evaluated based on how the resources are generated and spent using a set of pre-defined criteria. 


CEPR Policy Research