Working Paper: NBER ID: w21369
Authors: Jonathan Parker
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.
Keywords: Consumption smoothing; Household finance; Behavioral economics; Liquidity constraints
JEL Codes: D14; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liquidity (E41) | household spending (D10) |
| low liquidity (G19) | higher spending response (D12) |
| lack of consumption smoothing (D15) | spending response (E62) |
| lack of financial planning (D14) | higher spending upon receiving payments (E62) |
| household status two years prior (D19) | propensity to spend (D12) |