Asymmetric Consumption Smoothing

Fisher College of Business Working Paper No. 2013-03-20

Charles A. Dice Center Working Paper No. 2013-20

64 Pages Posted: 22 Dec 2013 Last revised: 13 Jul 2020

See all articles by Brian Baugh

Brian Baugh

Univeristy of Nebraska at Lincoln (UNL) - Department of Finance

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Hoonsuk Park

University of Melbourne - Faculty of Business and Economics

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: July 8, 2020

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 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

Suggested Citation

Baugh, Brian and Ben-David, Itzhak and Park, Hoonsuk and Parker, Jonathan A., Asymmetric Consumption Smoothing (July 8, 2020). Fisher College of Business Working Paper No. 2013-03-20, Charles A. Dice Center Working Paper No. 2013-20, Available at SSRN: https://ssrn.com/abstract=2370507 or http://dx.doi.org/10.2139/ssrn.2370507

Brian Baugh

Univeristy of Nebraska at Lincoln (UNL) - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

HOME PAGE: http://https://cba.unl.edu/people/bbaugh

Itzhak Ben-David (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Hoonsuk Park

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

Jonathan A. Parker

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA
United States
617-253-7218 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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