Does income inequality increase marginal propensity to consume?

ABSTRACT

This article empirically investigates the effects of income inequality on the marginal propensity to consume (MPC), using panel data of 22 OECD countries over the period 1994–2015. We find that MPC increases dramatically as income inequality increases. In subsample analyses, the MPC of a high inequality group is more than twice that of a low inequality group.

KEYWORDS:

• Income inequality
• consumption function
• Marginal propensity to consume

JEL CLASSIFICATION:

• D31
• E21
• E62

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the Korea University [K1520711].