Consumption and Debt Response to Unanticipated Income Shocks: Evidence from a Natural Experiment in Singapore
77 Pages Posted: 4 Apr 2013 Last revised: 24 Jul 2014
Date Written: July 4, 2014
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 the fiscal policy announcement: during the ten subsequent months, for each dollar received, consumers on average spent 80 cents. We find a strong announcement effect — 19% of the response occurs during the first two-month announcement period via credit cards. Subsequently, consumers switched to debit cards after disbursement before finally increasing spending on credit cards in the later months. Consumers with low liquid assets or with low credit card limit experienced stronger consumption responses.
Keywords: Consumption, Spending, Debt, Credit Cards, Household Finance, Banks, Loans, Durable Goods, Discretionary Spending, Fiscal Policy, Tax Rebates, Liquidity Constraints, Credit Constraints, Precautionary Savings, Anticipated and Unanticipated Income Shocks, Announcement Effects.
JEL Classification: D12, D14, D91, E21, E51, E62, G21, H31
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding
-
Household Expenditure and the Income Tax Rebates of 2001
By David Johnson, Jonathan A. Parker, ...
-
Household Expenditure and the Income Tax Rebates of 2001
By David Johnson, Jonathan A. Parker, ...
-
The Reaction of Consumer Spending and Debt to Tax Rebates - Evidence from Consumer Credit Data
By Sumit Agarwal, Chunlin Liu, ...
-
The Reaction of Consumer Spending and Debt to Tax Rebates -- Evidence from Consumer Credit Data
By Sumit Agarwal, Chunlin Liu, ...
-
'3rd of Tha Month': Do Social Security Recipients Smooth Consumption between Checks?
-
Did the 2001 Tax Rebate Stimulate Spending? Evidence from Taxpayer Surveys
-
Is There a Daily Discount Rate? Evidence from the Food Stamp Nutrition Cycle