AN INFLUENCE OF RELATIVE INCOME ON THE MARGINAL PROPENSITY TO CONSUME EVIDENCE FROM CZECH REPUBLIC

This study deals with the question whether there is a relationship between the marginal propensity to consume and the status of the household in income distribution represented by a relative income. If so, then the current assumption of mainstream theory of consumption about the constant marginal propensity to consume could no longer be considered realistic and it will be necessary to take the element of relative income as a new key determinant of general consumption function. The aim of this work is to identify, describe and prove an influence of relative income on the marginal propensity to consume using data from Czech Republic and thus to prove the correctness of Duesenberry's relative income hypothesis. To achieve this goal, we use a panel regression, which results clearly confirm the validity of the initial hypothesis about the existence of functional dependence of the marginal propensity to consume on the relative income and thus it fully supports the idea of interdependent concept of utility and consumption. This finding also implies a number of recommendations for policy-makers.