consumption and debt response to unanticipated income shocks evidence from a natural experiment in singapore abstract this paper uses a unique panel dataset of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock consumption rose significantly after th

aging and inequality in income and health in our earlier work we used data from the national health interview survey nhis to examine life cycle patterns in health status and in the joint distribution of health status and income deaton and paxson 1998 in this paper we summarize and extend those results and provide new evidence from the panel study of income dynamics psid both surveys contain a measure of household income and collect information on an ordinal measures of self reported health status srhs that ranges from 1 excellent to 5 poor section i concerns problems related to the measurement of inequality in health section ii presents evidence from the two surveys on health and income inequality this abstract was borrowed from another version of this item

automation and labor force participation in advanced economies macro and micro evidence abstract technological advances raise productivity and growth but are also likely to reshape labor markets we examine the impact of automation on aggregate labor force participation rates and individuals attachment to the workforce in advanced economies cross country analysis which leverages the variation in the routinizability of occupations and occupational composition points to significant negative effects of automation on the participation rates of prime age men and women individual level analysis confirms that workers previously employed in routinizable occupations are more likely to drop out of the labor force encouragingly higher spending on active labor market programs and education are however associated with smaller negative effects of technological change on participation

the consumption response to predictable changes in discretionary income evidence from the repayment of vehicle loans abstract although the life cycle permanent income hypothesis is the primary framework for understanding household consumption and savings decisions only a few studies have used clearly identifiable income changes to test the basic predictions of the model the estimates produced using this empirical strategy have yet to lead to a consensus of beliefs since the results have both favored and rejected the model this paper contributes to this literature by examining the consumption reaction to predictable increases in discretionary income following the final payment of a vehicle loan using data from the consumer expenditure survey the results show that a 10 increase in discretionary income due to a loan repayment leads to a 2 to 3 increase in nondurable consumption additional analysis suggests that these findings may be explained by the presence of borrowing constraints

testing the response of consumption to income changes with noisy panel data this paper tests the rational expectations lifecycle model of consumption against i a keynesian model and ii the rational expectations lifecycle model with imperfect capital markets the tests are based upon the relative responsiveness of consumption to income changes that can be predicted from past information and income changes that cannot he predicted the tests allow for measurement error in income the results reject the keynesian model and generally support the lifecycle model but the results are not sufficiently precise to rule out the possibility that some households are liquidity constrained measurement error has a strong influence on the relationship between consumption and income

household saving micro theories and micro facts in this survey we review the recent theoretical and empirical literature on household saving and consumption the discussion is structured around a list of motives for saving and how well the standard theory captures these motives we show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior we also discuss the behavioral or psychological approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving we provide a section on facts who save and how much we then discuss informally the recent decline in the u s saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time we do not find any convincing explanation for the change in saving rates we also discuss some analyses of saving behavior over the life cycle addressing such questions as whether households save enough for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model we also review a great number of studies of the consumption euler equations based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income we also examine in depth the recent empirical literature on the precautionary motive we conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle this motive is not so strong empirically as some investigators suggest

household debt and monetary policy revealing the cash flow channel we study the effect of monetary policy on spending when households hold debt with variable interest rates when interest rates on outstanding loans vary with the short term market interest rate monetary policy has a direct and immediate effect on households expenses and disposable income if households are borrowing constrained they will respond to a shock to disposable income by adjusting their spending as a result a monetary policy induced interest rate change leads to a larger change in consumption than what is predicted by the elasticity of intertemporal substitution we examine this cash flow channel of monetary policy using administrative data on swedish households we estimate a strong and statistically significant response in spending to changes in interest expenses more specifically we estimate a marginal propensity to consume including durable consumption that is around unity or even higher in response to monetary policy induced changes in interest expenses for example highly indebted households with adjustable rate mortgages reduce consumption growth by several percentage points more in response to a one percentage point increase in the household interest rate than households with little debt or fixed rate mortgages our findings imply that monetary policy will have a stronger effect on real economic activity when households are highly indebted and have adjustable rate mortgages jel classification d14 e21 e52 g11

do banks pass through credit expansions to consumers who want to borrow we examine the ability of policymakers to stimulate household spending during the great recession by reducing banks cost of funds using panel data on 8 5 million credit cards and 743 credit limit regression discontinuities we find that the one year marginal propensity to borrow mpb is declining in credit score falling from 59 for consumers with fico scores below 660 to essentially zero for consumers with fico scores above 740 we use the same credit limit discontinuities combined with a model of lending to estimate banks marginal propensity to lend mpl out of a decrease in their cost of funds for the lowest fico score consumers higher credit limits sharply reduce profits from lending limiting banks incentives to pass through credit expansions to these consumers we conclude that banks mpl is lowest for consumers with the highest mpb and discuss the implications for policies that aim to stimulate the economy through banks

do free goods stick to poor households experimental evidence on insecticide treated bednets summary if the market allocates goods to those willing and able to pay the most for them efforts to target durable health goods such as insecticide treated bednets itns to poor populations may prove ineffective with the poor reselling donated goods to the non poor who value them more highly however low market demand may be due to liquidity constraints rather than low valuation of nets the endowment effect also militates against the resale of in kind transfers we quantify these two effects through a field experiment in uganda our results indicate that very few nets will be resold by recipient households

consumer spending and the economic stimulus payments of 2008 abstract we measure the change in household spending caused by receipt of the economic stimulus payments of 2008 using questions added to the consumer expenditure survey and variation from the ran

the response of expenditures to anticipated income changes panel data estimates standard models of intertemporal allocation predict that the time path of expenditures should be independent of the time path of income recently two papers parker 1999 and souleles 1999 have suggested that u s households have a high marginal propensity to spend within year anticipated income changes we use an expenditure survey panel from spain to re examine this issue we exploit two important features of the spanish data first we have quarterly panel data that follows households for more than four quarters second we use the fact that workers are exogenously sorted into one of two payment schemes some receive the same amount each month of the year and others receive an extra payment in june and december the extra payment is large and predictable we examine the detailed pattern of expenditures over the year to see whether they differ between the two groups we fail to find even weak differences we complement this with a conventional euler equation analysis of excess sensitivity our predicting equation for quarterly earnings growth is much better than usual and is likely to give a powerful test of the hypothesis that predictable changes in income do not lead to changes in expenditure patterns the results of this analysis confirm the graphical analysis we find no evidence of excess sensitivity we conclude that households in normal times do smooth consumption over the year we suggest a reconciliation of our results with those of parker and souleles

the dynamics of health in the british household panel survey this paper considers the dynamics of a categorical indicator of self assessed health using eight waves 1991 1998 of the british household panel survey bhps our analysis has three focal points the relative contributions of state dependence and heterogeneity in explaining the dynamics of health the existence and consequences of health related sample attrition and the investigation of the effects of measures of socioeconomic status with a particular focus on educational attainment and income to investigate these issues we use dynamic panel ordered probit models there is clear evidence of health related attrition in the data but this does not distort the estimates of state dependence and of the socioeconomic gradient in health the models show strong positive state dependence and heterogeneity accounts for around 30 of the unexplained variation in health copyright 2004 john wiley sons ltd

luxuries are easier to postpone a proof we show that marshallian income elasticities are proportional to frisch own price elasticities if all goods are additively separable this implies that luxuries are likely to be easier to postpone it also implies that preferences over consumption are unlikely to display a constant elasticity of substitution

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

economic conditions and alcohol problems this study investigates the relationship between macroeconomic conditions and two alcohol related outcomes liquor consumption and highway vehicle fatalities fixed effect models are estimated for the 48 contiguous states over the 1975 1988 time period alcohol consumption and traffic deaths vary procyclically with a major portion of the effect of economic downturns attributed to reductions in incomes rather than employment the intake of hard liquor is the most sensitive to the state of the macroeconomy there is no evidence however that fluctuations in economic conditions have a disproportionate impact on the drunk driving of young adults

homeowner borrowing and housing collateral new evidence from expiring price controls i empirically analyze how changes to the collateral value of real estate assets affect homeowner borrowing behavior while previous research has documented a positive relationship between house prices and home equity based borrowing a key empirical challenge has been to disentangle the role of collateral constraints from that of wealth effects in generating this relationship to isolate the role of collateral constraints i exploit the expiration of resale price controls on owner occupied housing units created through an inclusionary zoning regulation in montgomery county maryland because the duration and stringency of the price controls are set by formula and known in advance their expiration has no effect on expected lifetime wealth but directly shocks collateralized borrowing capacity using data on all transactions and loans secured against every property in the county from 1997 2012 i estimate that the marginal propensity to borrow out of increases in housing collateral induced by expiring price controls is between 0 04 and 0 13 the magnitude of this effect is correlated with a homeowner s initial leverage and indicates that a significant fraction of the additional borrowing arising from house price increases is due to relaxing collateral constraints additional analysis of residential investment and ex post loan performance further suggests that borrowers used at least some portion of the extracted funds to finance current consumption and investment expenditures these results highlight the importance of collateral constraints for homeowner borrowing and suggest a potentially important role for house price growth in driving aggregate consumption

income related inequality in life years and quality adjusted life years abstract we estimate the income related inequality in sweden with respect to life years and quality adjusted life years qalys we use a large data set from sweden with over 40 000 individuals followed up for 10 16 years to estimate the survival and quality adjusted survival in different income groups for both life years and qalys we discover inequalities in health favouring the higher income groups for men women in the youngest age group 20 29 years the number of qalys is 43 7 45 7 in the lowest income decile and 47 2 49 0 in the highest income decile

the reaction of household consumption to predictable changes in social security taxes the key implication of rational expectations and the basic life cycle permanent income hypothesis that predictable changes in income have no effect on the growth rate of consumption expenditures is examined this implication is important for understanding the effectiveness and optimal timing of fiscal policy the causes and propagation of business cycles and the effects of income fluctuations on the growth rate of the economy using household level consumption data from the consumer expenditure survey whether expenditures on nondurable goods increase contemporaneously with predictable changes in social security tax withholding is tested it is found that households do change their consumption expenditures in response to the predictable fluctuations in income induced by the social security tax system

the competitive conditions in the oecd manufacturing industry the goal of this study was to assess the intensity of competition in the oecd manufacturing industry by using the panzar and rosse index over the period 1970 2011 for this purpose we use the fully modified ols method and second generation unit root analysis to investigate the level of competition across two digit manufacturing sectors the results are robust and consistent with similar studies leading to the rejection of perfect collusion and perfect competition while providing evidence in favour of monopolistic competition similarly to other empirical studies h statistics are shown to be heterogeneous across manufacturing sectors we argue that more concentrated sectors such as food and beverages motor vehicles and furniture have low levels of h statistic being thus less competitive than other industries i e computers transportation equipment printing and chemicals where the h statistic is closer to unity lastly our analysis will be a useful policy tool to achieve structural micro economic

consumption and income seasonality in thailand many households in developing countries rely on seasonal agriculture for their incomes this paper investigates whether household consumption expenditure tracks income across seasons using data from thailand i contrast the seasonal consumption patterns of households with different seasonal income patterns and estimate the responsiveness of seasonal consumption to seasonal income i find little evidence that consumption tracks income over the course of the year the findings suggest that observed seasonal consumption patterns are the result of seasonal variations in preferences or prices common to all households rather than an inability of households to use savings behavior to smooth consumption

do consumers react to anticipated income changes evidence from the alaska permanent fund a central implication of the life cycle permanentincome hypothesis lc pih is that consumers should not respond to predictable changes in their income to test this hypothesis a number of recent papers have exploited natural experiments to identify anticipated income changes in particular recent work by parker 1999 uses the change in after tax income due to the cap on earnings subject to the social security tax and a related paper by souleles 1999 examines the response of consumption to income tax refunds surprisingly parker and souleles find that even when income is expected to change within the year expenditure is excessively sensitive to the timing of the income change while their results can be interpreted as evidence that our canonical model of consumption is inadequate an alternative explanation is that the anticipated income changes they exploit are small and irregular and that households will not bother to change their consumption paths when the computational costs involved are large relative to the utility gains in support of this interpretation browning and collado 2001 find that the seasonal consumption patterns of spanish households that work in sectors that provide regular bonus payments do not differ from those of households that do not receive bonus payments this paper adds to this evidence by exploiting a natural experiment provided by annual payments from the state of alaska s permanent fund to every resident in the state of alaska that should yield an unusually powerful test of the lc pih these payments are large and clearly anticipated by alaskan residents using the variation in the size of the payments over time and in the amount received by families of different sizes to identify the response of consumption to payments from the permanent fund i find no evidence that the consumption of alaskan households reacts to these payments in addition i find no evidence that the seasonal pattern of consumption in alaska differs from that in the other 49 states or that households in alaska are subject to fewer liquidity constraints engage in less buffer stock saving or spend a smaller fraction of their income on semidurable goods than households in the rest of the united states however although households in alaska do not overreact to payments from the permanent fund i find that the consumption of the very same households is excessively sensitive to their income tax refunds this evidence suggest that households will take anticipated income changes into account in their consumption decisions when the income changes are large regular and easy to predict but will not do so when they are small and irregular the paper proceeds as follows the next section of the paper presents details on the department of economics princeton university princeton nj 08544 and national bureau of economic research e mail chsieh princeton edu i am very grateful to the bureau of labor statistics bls for providing access to the data from the consumer expenditure survey and to its staff particularly steven henderson walter vandeheide and wolf weber for their generous assistance during my visits to the bls i also thank nanci jones for providing data and patiently answering questions on the operation of the alaska permanent fund anne case angus deaton jonathan parker and two referees provided useful comments the views expressed in this paper are personal and should not be attributed to the bls 1 i refer to the certainty equivalent version of the lc pih or one in which the expected variance of consumption is constant as is well known without these assumptions the lc pih only implies smoothing of marginal utility not necessarily of consumption 2 see christina h paxson 1992 john shea 1995 jonathan a parker 1999 nicholas s souleles 1999 martin browning and m dolores collado 2001 also see ronald a bodkin 1959 for an early example of the use of a natural experiment to test for excess sensitivity for comprehensive reviews of the large literature on empirical tests of the lc pih see angus deaton 1992 browning and annamaria lusardi 1996 and browning and thomas f crossley 2001 3 in 1998 for example the permanent fund paid 1 541 to every resident of the state of alaska

can imperfect competition explain the difference between primal and dual productivity measures estimates for u s manufacturing it is well known that under the assumptions of constant returns to scale perfect competition and the absence of factor hoarding primal and dual productivity measures should be highly correlated the apparent lack of correlation is usually attributed to fixed factors of production in this paper i propose an alternative explanation by relaxing the assumption of perfect competition by controlling for the presence of a markup component i demonstrate that both productivity measures are in fact highly correlated for u s manufacturing the analysis also provides an alternative method of estimating a markup of prices over marginal cost that avoids certain difficulties inherent in some existing methods of estimation

does the benefits schedule of cash assistance programs affect the purchase of temptation goods evidence from peru a critique of cash assistance programs is that beneficiaries may spend the money on temptation goods such as alcohol and tobacco we exploit a change in the payment schedule of peru s conditional cash transfer program to identify the impact of benefit receipt frequency on the purchase of temptation goods we use annual household data among cross sectional and panel samples to analyze the effect of the policy change on the share of the household budget devoted to four categories of temptation goods using a difference in differences estimation approach we find that larger less frequent payments increased the expenditure share of alcohol by 55 80 and sweets by 10 40 although the absolute magnitudes of these effects are small our study suggests that less frequent benefits scheduling may lead cash recipients to make certain types of temptation purchases

in the mood to consume effect of sunshine on credit card spending abstract using a large representative sample of high frequency credit card transactions in the united states this paper examines the causal effect of sunshine induced mood on contemporaneous household credit card spending we document a 0 3 percent increase in credit card spending in response to a one unit increase in the same day local abnormal sunshine the spending response is stronger for consumers with higher credit card debt lower fico score and shorter tenure with the bank the effect manifests in long term durable goods spending and is not driven by other weather conditions complementarity between sunshine and consumption or intentional choice of consumption time we document similar responses of spending on seasonal and non seasonal goods and during times with high and low sunshine levels finally the sunshine effect occurs among consumers with various characteristics

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

intertemporal consumption durables and liquidity constraints a cohort analysis we provide a theoretical framework to analyse the response of life time maximizing consumers to intertemporal prices of non durable goods and durable goods when the borrowing limit depends on the market value of the stock of durables owned by the consumer we use pseudo panel data on purchases of non durables and durable goods cars and demographic characteristics from the uk family expenditure survey as well as estimates of the durable stock constructed using the uk national travel survey to estimate the equations derived in the first part of the paper we evaluate the shadow prices of these restrictions which were significantly positive for younger consumers in the mid seventies and immediately prior to the 1982 financial liberalisation

debt and depression we examine the effect of household financial indebtedness on psychological well being using a large household survey of families with children in britain existing studies that find a link between debt and depression tend to utilise small and highly selective samples of people and only self reported measures of financial stress responses to which are likely to correlate with subjective measures of health from additional household data we can construct a variety of objective quantitative measures of financial stress in order to validate self reported measures we show that although there is a positive association between subjective measures of financial well being and psychological well being individuals differ in their psychological response to objective household financial situations we also examine how the potential simultaneity of financial and psychological health might be handled

more powerful panel data unit root tests with an application to mean reversion in real exchange rates unit root tests seeking mean or trend reversion are frequently applied to panel data we show that more powerful variants of commonly applied tests are readily available moreover power gains persist when the modifications are applied to bootstrap procedures that may be employed when cross correlation of a rather general sort among individual panel members is suspected copyright 2004 john wiley sons ltd

a median voter model of health insurance with ex post moral hazard abstract one of the main features of health insurance is moral hazard as defined by pauly pauly m v 1968 the economics of moral hazard comment american economic review 58 531 537 people face incentives for excess utilization of medical care since they do not pay the full marginal cost for provision to mitigate the moral hazard problem a coinsurance can be included in the insurance contract but health insurance is often publicly provided having a uniform coinsurance rate determined in a political process is quite different from having different rates varying in accordance with one s preferences as is possible with private insurance we construct a political economy model in order to characterize the political equilibrium and answer questions like under what conditions is there a conflict in society on what coinsurance rate should be set and which groups of individuals will vote for a higher and lower than equilibrium coinsurance rate respectively we also extend our basic model and allow people to supplement the coverage provided by the government with private insurance then we answer two questions who will buy the additional coverage and how do the coinsurance rates people are now faced with compare with the rates chosen with pure private provision

competition conduct and demand elasticity abstract this paper demonstrates the relationship between the rosse panzar test for competitive conduct and the firm s elasticity of demand and develops a method of increasing the test s discriminating power

average earnings and long term mortality evidence from administrative data in this paper we exploit a unique database that merges longitudinal earnings data on pennsylvanian workers with national death records to study the detailed nature of the corre lation between earnings and mortality we find that the estimates typically reported in the lit erature which are based on single years of earn ings data are likely to understate substantially the strength of the association between income and mortality in particular relative to a single year of earnings the average of earnings over a six year period predicts a 70 percent greater impact of income on mortality in addition con trolling for the mean level of earnings over a period we find that greater earnings volatility is associated with higher mortality we also examine the lag structure of the rela tionship between earnings and mortality we

a note on the effect of unemployment on mortality in this note we test if unemployment has an effect on mortality using a large individual level data set of nearly 30 000 individuals in sweden aged 20 64 years followed up for 10 17 years we follow individuals over time that are initially in the same health state but differ with respect to whether they are employed or unemployed controlling also for a number of individual characteristics that may affect the depreciation of health over time unemployment significantly increases the risk of being dead at the end of follow up by nearly 50 from 5 36 to 7 83 in an analysis of cause specific mortality we find that unemployment significantly increases the risk of suicides and the risk of dying from other diseases all diseases except cancer and cardiovascular but has no significant effect on cancer mortality cardiovascular mortality or deaths due to other external causes motor vehicle accidents accidents and homicides

the impact of health status on the duration of unemployment spells and the implications for studies of the impact of unemployment on health status this paper examines the impact of health status on the duration of unemployment spells and finds that individuals with impaired health will have significantly longer unemployment spells these longer unemployment spells will result in the stock of unemployed being composed of a larger proportion of individuals with impaired health than the stock of employed although this difference in composition between the stock of unemployed and stock of employed can account for some of the observed difference in mortality rates it cannot explain all of the difference observed in earlier studies

estimation of price cost margins and union bargaining power for belgian manufacturing abstract this paper extends hall s 1988 hall r e 1988 the relationship between price and marginal cost in us industry journal of political economy 96 921 947 methodology to analyze imperfections in both the product and the labor market for firms in the belgian manufacturing industry over the period 1988 1995 we investigate the heterogeneity in price cost mark up and workers bargaining power parameters among 18 sectors within the manufacturing industry as well as the relationship between both parameters using a sample of more than 7000 firms our gmm results indicate that ignoring imperfection in the labor market leads to an underestimation of the price cost margin evaluated at perfect competition in the labor market these findings are confirmed in the sectoral analysis sectors with higher workers bargaining power typically show higher price cost margins

correlation consumption confusion or constraints why do poor children perform so poorly the economic and social mobility of a generation may be largely determined by the time it enters school given early developing and persistent gaps in child achievement by family income and the importance of adolescent skill levels for educational attainment and lifetime earnings after providing new evidence of important differences in early child investments by family income we study four leading mechanisms thought to explain these gaps an intergenerational correlation in ability a consumption value of investment information frictions and credit constraints in order to better determine which of these mechanisms inf uence family investments in children we evaluate the extent to which these mechanisms also explain other important stylized facts related to the marginal returns on investments and the effects of parental income on child investments and skills

unemployment and mental health some evidence from panel data microdata are used in this paper to analyze the effects of unemployment on mental health the analysis is done in two steps first cross section data of labor force participants are analyzed it appears that the unemployed have worse mental health than the employed next panel data are used to control for fixed effects that is unobserved omitted variables that are constant over time the model is also specified to allow both the occurrence of and duration of unemployment to affect mental health then we cannot reject the hypothesis that there are no effects of unemployment on mental health however some sensitivity tests indicate that the precision of our estimates is rather low

wealth shocks unemployment shocks and consumption in the wake of the great recession we use data from the 2009 internet survey of the health and retirement study to examine the consumption impact of wealth shocks and unemployment during the great recession in the us we find that many households experienced large capital losses in housing and in their financial portfolios and that a non trivial fraction of respondents have lost their job as a consequence of these shocks many households reduced substantially their expenditures we estimate that the marginal propensities to consume with respect to housing and financial wealth are 1 and 3 3 percentage points respectively in addition those who became unemployed reduced spending by 10 percent we also distinguish the effect of perceived transitory and permanent wealth shocks splitting the sample between households who think that the stock market is likely to recover in a year s time and those who don t in line with the predictions of standard models of intertemporal choice we find that the latter group adjusted much more than the former its spending in response to financial wealth shocks

does job loss shorten life this paper examines the impact of job loss on overall and cause specific mortality using linked employer employee data we identified the workers displaced due to all establishment closures in sweden in 1987 and 1988 hence we have extended the case study approach which has dominated the plant closure literature the overall mortality risk among men increased by 44 percent during the first four years following job loss while there was no impact on either female overall mortality or in the longer run for both sexes however there was an about twofold short run increase in suicides and alcohol related mortality

do liquidity constraints and interest rates matter for consumer behavior evidence from credit card data this paper utilizes a unique new dataset of credit card accounts to analyze how people respond to changes in credit supply the data consist of a panel of thousands of individual credit card accounts from several different card issuers with associated credit bureau data we estimate both marginal propensities to consume mpcs out of liquidity and interest rate elasticities we also evaluate the ability of different models of consumption to rationalize our results distinguishing the permanent income hypothesis pih liquidity constraints precautionary saving and behavioral models we find that increases in credit limits generate an immediate and significant rise in debt counter to the pih the average mpc out of liquidity ddebt dlimit ranges between 10 14 the mpc is much larger for people starting near their limits consistent with binding liquidity constraints however the mpc is significant even for people starting well below their limit we show this response is consistent with buffer stock models of precautionary saving nonetheless there are other results that conventional models cannot easily explain e g why so many people are borrowing on their credit cards and simultaneously holding low yielding assets unlike most other studies we also find strong effects from changes in account specific interest rates the long run elasticity of debt to the interest rate is approximately 1 3 less than half of this elasticity represents balance shifting across cards with most reflecting net changes in total borrowing the elasticity is larger for decreases in interest rates than for increases which can explain the widespread use of temporary promotional rates the elasticity is smaller for people starting near their credit limits again consistent with liquidity constraints

the effects of government transfers on monthly cycles in drug abuse hospitalization and mortality this paper analyzes the monthly patterns of adverse outcomes due to the consumption of illegal drugs by recipients of government transfer payments we find evidence that certain subpopulations on government cash aid significantly increase their consumption of drugs when their checks arrive at the beginning of the month and as a result experience adverse events including hospitalization and death using data from california we find that the overall rate of drug related hospital admissions increases abruptly at the beginning of the month with admissions increasing 23 during the first five days of the month we find that this cycle is driven largely by recipients of supplemental security income ssi ssi recipients also experience an abrupt 22 increase in within hospital mortality after receiving their checks these findings suggest that full wallets adversely affect some aid recipients and that policymakers should explore alternate disbursement regimes such as a staggered disbursement schedule or in kind support that have the potential to reduce the rate of adverse events

information sharing market competition and antitrust intervention a lesson from the italian insurance sector by means of an application of the rosse panzar methodology we assess the degree of competition in the italian car insurance market in order to evaluate the considerable fine that is imposed on 39 companies by the italian antitrust authority iaa in 2000 for their supposed anticompetitive behaviour due to a longstanding information exchange through a third independent company our results show that this group of firms has earned revenues as if under monopoly or collusive oligopoly conditions therefore endorsing the decision of iaa

assessing competition with the panzar rosse model the role of scale costs and equilibrium the panzar rosse test has been widely applied to assess competitive conduct often in specifications controlling for firm scale or using a price equation we show that neither a price equation nor a scaled revenue function yields a valid measure for competitive conduct moreover even an unscaled revenue function generally requires additional information about costs and market equilibrium to infer the degree of competition our theoretical findings are confirmed by an empirical analysis of competition in banking using a sample containing more than 100 000 bank year observations on more than 17 000 banks in 63 countries during the years 1994 2004

the life cycle model of consumption and saving a central implication of life cycle models is that agents smooth consumption we review the empirical evidence on smoothing at frequencies from within the year up to across a lifetime we find that life cycle models particular those which incorporate realistic features of markets and goods have more empirical successes than failures we also show that some apparent deviations from theoretical predictions imply very small welfare losses for agents finally we emphasize that the coherence of life cycle models imposes an important discipline when incorporating new features into models

the spending and debt response to minimum wage hikes abstract immediately following a minimum wage hike household income rises on average by about 250 per quarter and spending by roughly 700 per quarter for households with minimum wage workers most of the spending response is caused by a small number of households who purchase vehicles furthermore we find that the high spending levels are financed through increases in collateralized debt our results are consistent with a model where households can borrow against durables and face costs of adjusting their durables stock jel d12 d14 d91 j38

are children really inferior goods evidence from displacement driven income shocks abstract this paper explores the causal link between income and fertility by analyzing women s fertility response to the large and permanent income shock generated by a husband s job displacement i find that the shock reduces total fertility suggesting that the causal effect of income on fertility is positive a model that incorporates the time cost of children and assortative matching of spouses can simultaneously explain this result and the negative cross sectional relationship i also find that a husband s displacement accelerates childbearing which is consistent with lifecycle models of fertility in which the incentive to delay is driven by expected earnings growth

the timing of pay abstract there exists large and persistent variation in not only how but when employees are paid a fact unexplained by existing theory this paper develops a simple model of optimal pay timing for firms when workers have self control problems they under save and experience volatile consumption between paychecks thus pay whose delivery matches the timing of workers consumption needs will reduce wage costs the model also explains why pay timing should be regulated as it is in practice although the worker benefits from a timing profile that smoothes her consumption her lack of self control induces her to attempt to undo the arrangement either by renegotiating with her employer or by taking out payday loans regulation of pay timing and consumer borrowing is required to counter these efforts helping the worker help herself

consumption down payments and liquidity constraints one frequently cited explanation for the empirical failure of the orthodox life cycle permanent income hypothesis lc pih is the presence of binding liquidity constraints households inability to borrow and lend at the same interest rate or to borrow the desired quantity can distort household consumption profiles depressing consumption during periods when constraints bind whether or not liquidity constraints bind has important implications for the sensitivity of consumption to fluctuations in income the neutrality of government debt and the structure of taxation despite the potential importance of liquidity constraints in understanding macroeconomic behavior there has been comparatively little research into the effect of specific constraints on consumption one area of consumer behavior where liquidity constraints arguably may be important is in housing decisions and mortgage markets households wishing to own a first home must accumulate a down payment in order to qualify for a mortgage loan currently for conventional mortgages in the united states most lending institutions require between s percent and 20 percent of the purchase price of the home put down in advance of the purchase 2 without access to private gifts or loans many

healthy bodies and thick wallets the dual relation between health and economic status there is abundant evidence of a quantitatively large association between many measures of economic status including income and wealth and a variety of health outcomes such as mortality or morbidity however considerable and often heated debate remains especially across disciplines about the direction of causation and about why the association arises although medical scientists are often convinced that the dominant if not exclusive pathway is that variation in socioeconomic status produces health disparities they are increasingly debating among themselves about why low economic status might lead to poor health at least for modern industrial countries 1 the old standby arguments the less well to do have access to less or lower quality medical care or a stronger pattern of deleterious personal behaviors have been rejected as insufficient instead a series of intriguing competing theories have arisen that emphasize long term impacts of early childhood or even inter uterine environmental factors the cumulative effects of prolonged exposures to individual stressful events or reactions to macro societal factors such as rising levels of income inequality a common link is that each theory attempts to document the physiological processes through which low economic status leads to poorer health while these scientific questions are extremely important this research has taken place with little input from economists economists are now making contributions about the alternative pathway the impact poor health may have on economic resources poor health may restrict a family s capacity to earn income or to accumulate assets by limiting work or by raising medical expenses at a minimum this work should provide a caution against exaggerating the magnitude of causation from economic status to health outcomes but the potential contribution runs deeper as people age the evolving variation in individual health outcomes may offer additional statistical information to estimate parameters of household savings and consumption behavior that so far have proven to be somewhat elusive thus incorporating health uncertainty and risk into economic models should eventually enrich our understanding of basic tenets of household behavior the first section of this paper documents the size of the association between health and one prominent economic status measure household wealth section two deals with how health influences economic status by sketching out reasons why health may alter household savings and eventually wealth and then providing estimates of the empirical magnitude of these effects section three shifts attention to the alternative pathway the links between economic status and health and summarizes 2major controversies and evidence surrounding these issues

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

uncertain health and survival effects on end of life consumption this article analyzes the impact of health and survival uncertainty on the saving and consumption decisions of retirees a dynamic programming approach is used to model the household s planning problem the utility parameters are estimated using panel data we find that a fall into poor health raises the marginal utility from consumption simulations are used to indicate the effects of falling into poor health and loss of spouse they reveal a large transfer from the healthy to the sick partner and a strong dependence of saving on the survivor benefits suggesting that concern about the surviving spouse is an important motive for saving

income productivity in china on the role of health this study provides empirical evidence regarding the income productivity of health human capital in china we appeal to concepts from human capital theory to support a basic model that treats health as a form of human capital in the income production process our model examines the economic return at the household level from the health of its individual members we estimate this with a longitudinal sample drawn from the china health and nutrition survey chns allowing us to exploit within variation in health and income to address possible unobservables biasing estimates of the impact of health on income in the simple cross sectional setting household income is strongly influenced by the health of its members particularly in rural areas these findings could have important implications for health and economic policy making aimed at reducing the long standing urban rural economic gap and more comprehensively insuring the rural population against health and economic risk

measuring corruption in china an expenditure based approach using household survey data most existing micro level empirical analyses of corruption rely on administrative records special purpose surveys or field experiments which can be difficult or very costly to obtain in some situations in this paper we apply an expenditure based method of quantifying the extent of corruption in a particular country using household survey data this method utilizes discrepancies between consumption and reported income to measure corruption another contribution of this paper is that it provides the first objective estimate of the extent of corruption in china we use a quadratic clothing expenditure function to estimate the extent of corruption in china in 2002

intertemporal consumption and credit constraints does total expenditure respond to an exogenous shock to credit there is continuing controversy over the importance of credit constraints this paper investigates whether total household expenditure and debt is affected by an exogenous increase in access to credit provided by a credit market reform that enabled danish house owners to use housing equity as collateral for consumption loans we find that the magnitude of the response is correlated with the amount of equity released by the reform and that the effect is strongest for younger households even for this group the response was moderate the aggregate effect of the reform was significant but small

does consumption respond to predicted increases in cash hand availability evidence from the italian severance pay abstract we examine whether italian household consumption exhibits excess sensitivity to severance pay a sizable lump sum that workers receive at job termination we find no evidence of excess sensitivity of non durable expenditure to this anticipated cash in hand change

early and late human capital investments borrowing constraints and the family we develop a dynastic human capital investment framework to study the importance of family borrowing constraints and uninsured labor market risk as well as the process of intergenerational ability

liquidity constraints and intertemporal consumer optimization theory and evidence from durable goods this paper develops and tests the implications of optimal consumption behavior with borrowing constraints the theory shows that liquidity constraints imply a distinctive intertemporal relationship between durable and nondurable goods consumption binding liquidity constraints appear as part of an error correction term derived from the long run cointegrating relationship between durables and nondurables when liquidity constraints are binding the error correction term will have predictive power for the future change in nondurable consumption empirical tests of the implications using aggregate data support the hypothesis that liquidity constraints rather than rule of thumb behavior best explain the excess sensitivity of consumption to predictable changes in income copyright 1995 by ohio state university press

college tuition and household savings and consumption abstract despite the high cost of college there has been little study of the adequacy of household savings and other resources available to fund college to gauge their adequacy this paper examines households standard of living as they pay for college using the consumer expenditure survey the main finding is that households appear to do a relatively good job smoothing their consumption into the academic year despite large expenses this is consistent with the life cycle theory of saving and consumption there is some evidence of a delayed decline in consumption and of a decline for households with children first beginning college but the magnitudes of these declines are rather small

the permanent income hypothesis and the real interest rate some evidence from panel data abstract a test of the permanent income hypothesis in panel data is formulated taking into account both the time series and cross section variation in the rate of return the over identifying restrictions of the theory rejected

adjustment of consumers durables stocks evidence from automobile purchases this paper tests an optimal s s rule in household durable purchases and examines directly the resulting aggregate expenditure dynamics the observed decision rule responds to income uncertainty and growth as predicted by an s s model resulting from transactions costs tests against liquidity constraints find that about half the households purchase according to an optimal s s rule aggregating the s s rule over households produces a cross section distribution of durables holdings the empirical distribution is similar to that predicted theoretically as is its response to aggregate shocks furthermore simulations of aggregate expenditure based on the household distribution exhibit dynamics consistent with those observed in the 1980s

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance

the lot of the unemployed a time use perspective this paper provides new evidence on time use and subjective well being of employed and unemployed individuals in 14 countries we devote particular attention to characterizing and modeling job search intensity measured by the amount of time devoted to searching for a new job job search intensity varies considerably across countries and is higher in countries that have higher wage dispersion we also examine the relationship between unemployment benefits and job search

unemployment and infant health times series evidence from the state of tennessee this is the first study that decomposes unemployment into its structural and cyclical components and investigates their impact on income distribution controlling for the influence of inflation increases in structural unemployment have a substantial