The Marginal Propensity to Consume and Household Savings During the COVID-19 Pandemic: Evidence from Thailand and Vietnam

Using representative household surveys conducted in Thailand and Vietnam during
the COVID-19 pandemic, we nd that the marginal propensity to consume is sig-
nicantly larger for positive than for negative income shocks. Moreover, we discover
that the savings position plays a crucial role, as the eects are especially pronounced
for households that experienced a decline in savings. This result contradicts a pre-
diction from the life-cycle permanent income model with borrowing constraints as
well as empirical evidence from industrialized countries. However, our nding is
consistent with Kahneman and Tversky's prospect theory, according to which the
combination of income uncertainty and loss aversion can lead households to react
more strongly to positive shocks than to negative ones.