Asymmetric Consumption Smoothing
American Economic Review
vol. 111,
no. 1, January 2021
(pp. 192-230)
Abstract
Analyzing account-level data from an account aggregator, we find that households increase consumption when they receive expected tax refunds, as if they face liquidity constraints. However, these same households smooth consumption when making payments in other years, primarily by transferring funds among liquid accounts. Even households carrying credit card debt smooth consumption when making payments, and even highly liquid households spend out of refunds. This behavior is inconsistent with pure liquidity constraints or hand-to-mouth behavior and is most consistent with a mental accounting life-cycle model.Citation
Baugh, Brian, Itzhak Ben-David, Hoonsuk Park, and Jonathan A. Parker. 2021. "Asymmetric Consumption Smoothing." American Economic Review, 111 (1): 192-230. DOI: 10.1257/aer.20181735Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- E21 Macroeconomics: Consumption; Saving; Wealth
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- H31 Fiscal Policies and Behavior of Economic Agents: Household