This paper examines consumer response to windfall income. By using data from the 1972-73 Consumer Expenditure Surveys, an attempt was made to test Friedman's permanent income hypothesis. The results revealed that the marginal propensity to consume regular income was greater than the marginal propensity to consume windfall income for windfalls that were large relative to regular income. However, when windfall income was less than ten percent of regular income, the relationship reversed. Implications are drawn for short and loegrun fiscal policies affecting consumersThe permanent income hypothesis has served several purposes in consumption theory and policy. It has contributed to the reconciliation of short-run and long-run estimates of the consumption function and identified lags in the reactions of consumers to changes in income. Knowledge of the lags permits a better understanding of the timing of government policy effects. In addition, it has introduced a framework for explaining consumer reactions to transitory and permanent income changes. The 1968 tax surcharge episode and other temporary government actions1 such as current reversals in tax policies have established the importance of the policy implications.The hypothesis is open to empirical testing as well as requiring estimation of the parameter values. Many tests have been performed 'Several articles have discussed the 1968 tax surcharge in terms of the permanent income hypothesis; see, for example, [17].
used model of advertising, explicitly includes emotion as an integral component of effective advertising. Interest in the role that emotion plays in advertising effectiveness can be traced back to the 1980s. 3-5 During this time, researchers established linkages between affective responses and attitudes towards INTRODUCTION 'Emotional kick' is an integral part of advertising effectiveness. As Zeitlin and Westwood 1 point out, 'No advertising communication can be neutral in its emotional content since then it would be communicating nothing at all'. The Rossiter and Percy model, 2 a commonly
Kenyon C o k e privatizarion, thrrunovalof~ularorycona~lMdsimilarchanges in p r o m rights within jbms can be apcted to shifi cost fimcrions downward and p e d increased output, b w e r j k l service prices and more eff;icnt rcjowce ahcation The US AiriLv Lkrquhtion Act of 1978 was clearly apected to have these &ect.% Thirpaper investigates whether the wi&ty anticipated reduction in costs following the Airline Dngulation Act of 1978 actually occwcd We utilize an empirical ptoccdwc that erplicitiy taker the multi-product characterish into account and identifies the various sources of changes in costs The change in airline's costs are decomposed into components and separately measured to identzfi the effects attributable to deregulation A nwnber of other countries are now conridcring imponant changes in rhc public o w m h p and conml I See Fonyth and Hocking (1980) for mC argument that thae 1cc no diffmnces in COSD unda regulation and public ownership. Also see Davies's (1980) rcply. 2 Kirby and Albon tiad a significpnt difference of 5 per c c n~ cckvis pri!nu! but emphuizc (1985. p. 539)that thu difference n likely to be much smlllcr than cost differentials between totally dccontrdkd airlines and either regulated or publicly owned carrim
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