The Propensity to Consume Income from Different Sources and Implications for Saving: An Application to Norwegian Farm Households

Traditionally, farm households have relatively high saving and low marginal propensity to consume (MPC). In the last decades, this seems to have changed. To investigate these matters, a dynamic consumption model is estimated using a GMM-system estimator and a panel of 258 Norwegian farm households followed from 1976-1997. The main findings are that the MPC of farm income is lower than for off-farm income and that average MPC is low but increasing over time in these households. This may imply that some of the observed reduction in farm saving is explained by reduced need for precautionary saving