Downloads
Download working paper here
PDF | 2.63 MB
A longstanding puzzle in macroeconomics is why individuals with similar levels of available liquidity can have very different marginal propensities to consume (MPCs). We use a new approach to better investigate differences in consumer behaviour in response to hypothetical, one-off gains and losses: using open-ended questions and text analysis to understand the motives underlying consumers decisions. High-liquidity individuals with high MPCs often cite mental accounting motives. Apparently illiquid individuals report a range of coping mechanisms in response to a loss, including labour supply responses, relying on friends and family and selling possessions. This implies greater effective liquidity than narrow financial measures indicate.
Authors
Research Fellow University of Michigan
Tom is a Research Fellow at IFS, a Research Professor for the Institute for Social Research at the University of Michigan.
Associate Director
Peter joined in 2009. He has published several papers on the microeconomics of household spending and labour supply decisions over the life-cycle.
Postdoctoral Researcher University of St Gallen
Working Paper details
- DOI
- 10.1920/wp.ifs.2024.3824
- Publisher
- Institute for Fiscal Studies
Suggested citation
T, Crossley and P, Levell and S, Sierra Vásquez. (2024). What would you do with £500? (...in your own words). 24/38. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/what-would-you-do-ps500-your-own-words (accessed: 14 October 2024).
More from IFS
Understand this issue
Raising revenue from closing inheritance tax loopholes
Reforms could be enacted to make inheritance tax fairer and raise revenue.
18 April 2024
Why inheritance tax should be reformed
18 January 2024
How important is the Bank of Mum and Dad?
15 December 2023
Policy analysis
Policies to improve employees’ retirement resources
16 September 2024
Making mortgage guarantees permanent will help some first-time buyers, but only if they can afford a bigger mortgage
6 June 2024
Homeownership for young adults has recovered to its 2010 level
29 May 2024
Academic research
Cheapflation and the rise of inflation inequality
14 August 2024
The intergenerational elasticity of earnings: Exploring the mechanisms
3 June 2024
The life-cycle dynamics of wealth mobility
10 April 2024