'3rd of tha Month': Do Social Security Recipients Smooth Consumption Between Checks?
Melvin Stephens Jr.
This paper examines the response of consumption expenditures to the monthly receipt of Social Security checks. Since the amount and arrival date of these checks are known to the recipients, the basic Life-Cycle/Permanent Income Hypothesis (LCPIH) predicts that consumption should not respond to the receipt of these checks. Using daily diary data from the Consumer Expenditure Survey, this paper finds evidence that both the dollar amount and probability of expenditures increase immediately following the receipt of this check. Most relevant to testing the LCPIH, categories of instantaneous consumption expenditure such as food away from home increase on the check arrival date. The response is found primarily amongst households for whom Social Security is the primary source of income. However, the magnitude of the estimated responses are relatively small and do not suggest that the utility losses are large from this non-smoothing behavior.
Published: Stephens Jr., Melvin. "`3rd of tha Month': Do Social Security Recipients Smooth Consumption Between Checks?" The American Economic Review 93, 1 (March 2003): 406-422.