Microeconomics Seminar with Steven Hamilton (GW)

During the pandemic, the Australian Government allowed eligible people to withdraw up to A$20,000 (around 40% of median annual income) tax-free from their private pension account, normally prohibited until retirement. One quarter of the working-age population withdrew more than 2% of GDP in total. Using administrative tax records and detailed bank account transaction data we study selection into the program and its effects on spending and other outcomes. We find a marginal propensity to consume (MPC) within 6 weeks of withdrawal of 0.5 on average, of similar magnitude to the MPCs out of far smaller unconditional cash transfers both to the same individuals and in the literature. Those who withdrew had lower liquidity, and the most liquid 20% of withdrawers had an MPC around half (0.3) that of the least liquid 60% (0.6). The widespread willingness to make very large withdrawals paired with the high propensity to consume out of those withdrawals is inconsistent with the “wealthy hand-to-mouth” explanation for the large MPCs observed in the literature. Rather, a simple present-bias story seems more consistent with the evidence.

Speaker: Steven Hamilton (GW)

Seminar will be held Virtually. Please sign up for our seminars listserv to receive the details.