Abstract

https://ssrn.com/abstract=2245351
 
 

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Consumption and Debt Response to Unanticipated Income Shocks: Evidence from a Natural Experiment in Singapore


Sumit Agarwal


Georgetown University - Department of Finance

Wenlan Qian


National University of Singapore - NUS Business School

July 4, 2014


Abstract:     
This paper uses a unique panel dataset of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock. Consumption rose significantly after the fiscal policy announcement: during the ten subsequent months, for each dollar received, consumers on average spent 80 cents. We find a strong announcement effect — 19% of the response occurs during the first two-month announcement period via credit cards. Subsequently, consumers switched to debit cards after disbursement before finally increasing spending on credit cards in the later months. Consumers with low liquid assets or with low credit card limit experienced stronger consumption responses.

Number of Pages in PDF File: 77

Keywords: Consumption, Spending, Debt, Credit Cards, Household Finance, Banks, Loans, Durable Goods, Discretionary Spending, Fiscal Policy, Tax Rebates, Liquidity Constraints, Credit Constraints, Precautionary Savings, Anticipated and Unanticipated Income Shocks, Announcement Effects.

JEL Classification: D12, D14, D91, E21, E51, E62, G21, H31


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Date posted: April 4, 2013 ; Last revised: July 24, 2014

Suggested Citation

Agarwal, Sumit and Qian, Wenlan, Consumption and Debt Response to Unanticipated Income Shocks: Evidence from a Natural Experiment in Singapore (July 4, 2014). Available at SSRN: https://ssrn.com/abstract=2245351 or http://dx.doi.org/10.2139/ssrn.2245351

Contact Information

Sumit Agarwal
Georgetown University - Department of Finance ( email )
3700 O Street, NW
Washington, DC 20057
United States
202-687-8207 (Phone)
HOME PAGE: http://www.ushakrisna.com

Wenlan Qian (Contact Author)
National University of Singapore - NUS Business School ( email )
15 Kent Ridge Drive
Singapore 117592, 119245
Singapore
(65) 65163015 (Phone)
HOME PAGE: http://sites.google.com/site/wenlanqian/
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