Transfers and Development: Easy Come, Easy Go?

L. Christiaensen, Lei Pan Lei

Research output: Working paperAcademic

Abstract

Contrary to the popular notion that money that is easily earned, is also easily spent, economic theory holds that income is fungible. Drawing on the concept of mental accounting, this study theoretically explores when such a link between spending behaviour and the effort dispensed in obtaining income is plausible. Empirically, it is found that the marginal propensity to consume from unearned income is about three times larger than that from earned income, based on household panel data from rural China, with the difference more pronounced when unearned income is transitory and smaller than earned income. The policy implications are real.
Original languageEnglish
PublisherWider
Number of pages35
Volume2010/125
Publication statusPublished - 2010

Publication series

NameWIDER Working Paper Series
No.2010/125
ISSN (Print)1798-7237

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