Winners, Losers, and Near-Rationality: Heterogeneity in the MPC out of a Large Stimulus Tax Rebate

This paper documents heterogeneity in consumption responses to a large stimulus tax rebate based on household exposure to a housing price cycle. Linking geocoded household expenditure and financial transactions data to local housing price indices in Japan, we estimate a U-shaped pattern in the marginal propensity to consume with respect to housing price growth. Recipients living in areas with the smallest housing price gains during the 1980s spent 44% of the 1994 rebate within three months of payment, compared to 23% among recipients in areas which experienced the largest housing price gains. While we find limited heterogeneity in marginal propensities to consume among households in less-affected areas, MPCs are higher for younger, renter households with no debt residing in more-affected areas. These findings are consistent with near-rational households for which the pricing shock was small relative to permanent income spending a larger fraction of the tax rebate. Our analysis suggests fiscal stimulus payments primarily induce spending among "winner" households who face minimal exposure to housing price cycles.