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Why Don’t Households Smooth Consumption? Evidence from a $25 Million Experiment†

Why Don’t Households Smooth Consumption? Evidence from a $25 Million Experiment† AbstractThis paper evaluates theoretical explanations for the propensity of households to increase spending in response to the arrival of predictable, lump-sum payments, using households in the Nielsen Consumer Panel who received $25 million in randomly distributed stimulus payments. The pattern of spending is inconsistent with models in which identical households cycle rapidly through high and low- response states as they manage liquidity, but is instead highly predictable by income years before the payment. Spending responses are unrelated to expectation errors, almost unrelated to crude measures of procrastination and self-control, significantly related to sophistication and planning, and highly related to impatience. (JEL D12, D14, D91, E21, H23) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Why Don’t Households Smooth Consumption? Evidence from a $25 Million Experiment†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20150331
Publisher site
See Article on Publisher Site

Abstract

AbstractThis paper evaluates theoretical explanations for the propensity of households to increase spending in response to the arrival of predictable, lump-sum payments, using households in the Nielsen Consumer Panel who received $25 million in randomly distributed stimulus payments. The pattern of spending is inconsistent with models in which identical households cycle rapidly through high and low- response states as they manage liquidity, but is instead highly predictable by income years before the payment. Spending responses are unrelated to expectation errors, almost unrelated to crude measures of procrastination and self-control, significantly related to sophistication and planning, and highly related to impatience. (JEL D12, D14, D91, E21, H23)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Oct 1, 2017

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