Why Don't Households Smooth Consumption? Evidence from a 25 Million Dollar Experiment

NBER Working Paper No. 21369

Issued in July 2015, Revised in February 2017

NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, Monetary Economics, Public Economics



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 randomly-distributed stimulus payments. The pattern of spending is inconsistent with models in which identical households cycle rapidly through high and low response states as they manage liquidity, but is instead highly predictable by income years before the payment. Spending responses are unrelated to expectation errors, almost unrelated to crude measures of procrastination and self-control, significantly related to sophistication and planning, and highly related to impatience.

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Document Object Identifier (DOI): 10.3386/w21369

Published: Parker, Jonathan A. 2017. "Why Don't Households Smooth Consumption? Evidence from a $25 Million Experiment." American Economic Journal: Macroeconomics, 9 (4): 153-83. DOI: 10.1257/mac.20150331

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