Dump the Hump: How Education Impacts Consumption Smoothing and Macroeconomic Outcomes

Svend E. Hougaard Jensen, Sigurdur Pall Olafsson, Thorsteinn Sigurdur Sveinsson, Gylfi Zoega

Publikation: Working paperForskning

Abstract

We study consumption and saving behaviour by education group in Iceland over the years 2005-2019, a turbulent period with dramatic fluctuations in factor incomes before, during and after the collapse of the country’s banking system. Using microdata containing the tax returns of all Icelandic taxpayers, we find that higher education lowers the marginal propensity to consume (MPC) by raising disposable income and relaxing liquidity constraints. Our results have implications for economic policy. For example, with a lower MPC following an increase in the average level of education, the multiplier is also lower, thus reducing the effectiveness of discretionary fiscal policy. However, since a lower multiplier strengthens the built-in stabilizing impact on the economy, macroeconomic volatility is reduced. Finally, in addition to using more conventional redistributive devices, countries struggling with unequal distributions of wealth and income could improve their situation by raising the level of education.
OriginalsprogEngelsk
UdgivelsesstedVienna
UdgiverSUERF – The European Money and Finance Forum
Antal sider7
StatusUdgivet - 2023
NavnSUERF Policy Brief
Nummer566

Emneord

  • Education
  • Consumption
  • Inequality
  • Macroeconomic stability

Citationsformater