TY  - JOUR
AU  - Kimball,Miles S.
TI  - Precautionary Saving and the Marginal Propensity to Consume
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3403
PY  - 1990
Y2  - July 1990
UR  - http://www.nber.org/papers/w3403
L1  - http://www.nber.org/papers/w3403.pdf
N1  - Author contact info:
Miles S. Kimball
Department of Economics
University of Michigan
Ann Arbor, MI  48109-1220
Tel: 734/764-2375
Fax: 734/764-2769
E-Mail: mkimball@umich.edu
AB  - The marginal propensity to consume out of wealth is important for evaluating the effects of taxation on consumption, assessing the possibility of multiple equilibria due to aggregate demand spillovers, and explaining observed variations in consumption. It is also a component of the interest elasticity of consumption and the risk aversion of the value function which gives the expected present value of utility as a function of wealth. This paper analyzes the effect of uncertainty on the marginal propensity to consume within the context of the Permanent Income Hypothesis. Given plausible conditions on the utility function, income risk is found to raise the marginal propensity to consume out of wealth in a multiperiod model with many risky securities. The marginal investment portfolio for additions to wealth is also characterized.
ER  -