NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Individuals Smooth Spending: Evidence from the 2013 Government Shutdown Using Account Data

Michael Gelman, Shachar Kariv, Matthew D. Shapiro, Dan Silverman, Steven Tadelis

NBER Working Paper No. 21025
Issued in March 2015, Revised in November 2015
NBER Program(s):   EFG   ME   PE   PR

Using comprehensive account records, this paper examines how individuals adjusted spending and saving in response to a temporary drop in income due to the 2013 U.S. government shutdown. The shutdown cut paychecks by 40% for affected employees, which was recovered within 2 weeks. Though the shock was short-lived and completely reversed, spending dropped sharply implying a naïve estimate of the marginal propensity to spend of 0.58. This estimate overstates how consumption responded. While many individuals had low liquidity, they used multiple strategies to smooth consumption including delay of recurring payments such as mortgages and credit card balances.

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Document Object Identifier (DOI): 10.3386/w21025

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