Why Don't Households Smooth Consumption? Evidence from a 25 Million Dollar Experiment
Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 1-053
47 Pages Posted: 14 Jul 2015
Date Written: July 13, 2015
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 Federal stimulus payments that were distributed randomly across weeks. The pattern of spending is inconsistent with models in which identical households cycle through high and low response states as they manage liquidity. Instead, the propensity spend is a persistent household trait. This trait is unrelated to expectation errors, almost unrelated to crude measures of procrastination and self-control, moderately related to measures of sophistication and planning, and highly related to a measure of impatience.
Keywords: Consumption smoothing, Liquidity constraints, impatience, marginal propensity to consume, inattention, self-control, procrastination
JEL Classification: D12, D91, E21, H31
Suggested Citation: Suggested Citation