Why Don't Households Smooth Consumption? Evidence from a $25 Million Experiment
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Abstract
This 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.Citation
Parker, Jonathan A. 2017. "Why Don't Households Smooth Consumption? Evidence from a $25 Million Experiment." American Economic Journal: Macroeconomics, 9 (4): 153-83. DOI: 10.1257/mac.20150331Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D14 Household Saving; Personal Finance
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- E21 Macroeconomics: Consumption; Saving; Wealth
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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