Asymmetric Consumption Smoothing
Charles A. Dice Center Working Paper No. 2013-20
64 Pages Posted: 22 Dec 2013 Last revised: 13 Jul 2020
Date Written: July 8, 2020
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 most consistent with a mental accounting life-cycle model.
Keywords: Consumption, household finance, liquidity constraints, hand-to-mouth, mental accounting, tax refunds
JEL Classification: G4, D12, E21, H31
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