Discussion Papers Statistics Norway Research department No. 852 • November 2016 Andreas Fagereng, Martin B. Holm and Gisle J. Natvik MPC heterogeneity and household balance sheets Discussion Papers No. 852, November 2016 Statistics Norway, Research Department Andreas Fagereng, Martin B. Holm and Gisle J. Natvik MPC heterogeneity and household balance sheets Abstract: Using Norwegian administrative data, we study how sizable lottery prizes affect household expenditure and savings. Expenditure responses (MPCs) spike in the year of winning, with a mean estimate of 0.35, and thereafter fall markedly. Controlling for all items on the household balance sheet and characteristics such as education and age, MPCs vary with the amount won and liquid assets only. Shock size matters: The MPC among the 25 percent winning least is twice as high as among the 25 percent winning most. Many households are wealthy, illiquid and have high MPCs, consistent with 2-asset models of consumer choice. Keywords: D12, D14, D91, E21 JEL classification: marginal propensity to consume, household expenditure response, household heterogeneity, income shocks Acknowledgements: We thank Mario Alloza, Adrien Auclert, Paco Buera, Thomas Crossley, Nicola Fuchs-Schündeln, Ragnar Juelsrud, Davide Malacrino, Ben Moll, Luigi Pistaferri, Terje Skjerpen, Kjetil Storesletten, Nate Vellekoop and Gianluca Violante, as well as participants at seminars, workshops and conferences, for helpful discussions and suggestions. Address: Andreas Fagereng, Statistics Norway, Research Department. E-mail:
[email protected] Martin B. Holm, Department of Economics, BI Norwegian Business School, E:-mail:
[email protected] Gisle J. Natvik, Department of Economics, BI Norwegian Business School, E:-mail:
[email protected] Discussion Papers comprise research papers intended for international journals or books.