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Asymmetric Consumption Smoothing

Author(s)
Baugh, Brian; Ben-David, Itzhak; Park, Hoonsuk; Parker, Jonathan A
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Abstract
© 2021 American Economic Association. All rights reserved. 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.
Date issued
2021
URI
https://hdl.handle.net/1721.1/134039
Department
Sloan School of Management
Journal
American Economic Review
Publisher
American Economic Association

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