American Economic Review Vol. 111 No. 1 2021

Asymmetric Consumption Smoothing

Brian Baugh¹; Itzhak Ben-David²; Hoonsuk Park³; Jonathan A. Parker⁴

¹ College of Business, University of Nebraska-Lincoln (email: ) · ² Fisher College of Business, The Ohio State University, and NBER (email: ) · ³ Faculty of Business and Economics, University of Melbourne (email: ) · ⁴ Sloan School of Management, Massachusetts Institute of Technology, and NBER (email: )

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.

DOI

10.1257/aer.20181735

Volume

111

Issue

1

Pages

192-230

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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