Data and Code for: MPC Heterogeneity and Household Balance Sheets

We use sizable lottery prizes in Norwegian administrative panel data to explorehow transitory income shocks are spent and saved over time, and how households’marginal propensities to consume (MPCs) vary with household characteristics andshock size. We find that spending peaks in the year of winning and gradually revertsto normal within five years. Controlling for all items on households’ balancesheets and characteristics such as education and income, it is the amount won, age,and liquid assets that vary systematically with MPCs. Low-liquidity winners of thesmallest prizes (around USD 1,500) are estimated to spend all within the year of winning.The corresponding estimate for high-liquidity winners of large prizes (USD8,300-150,000) is slightly below one half. While conventional models will struggle toaccount for such high MPC levels, we show that a two-asset life-cycle model with arealistic earnings profile and a luxury bequest motive can account for both the timeprofile of consumption responses and their systematic co-variation with observables.