TY  - JOUR
AU  - Stephens,Melvin,Jr.
TI  - The Consumption Response to Predictable Changes in Discretionary Income: Evidence from the Repayment of Vehicle Loans
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9976
PY  - 2003
Y2  - September 2003
UR  - http://www.nber.org/papers/w9976
L1  - http://www.nber.org/papers/w9976.pdf
N1  - Author contact info:
Melvin Stephens, Jr.
University of Michigan
Department of Economics
341 Lorch Hall
611 Tappan St.
Ann Arbor, MI 48109-1220
Tel: 734/647-5606
E-Mail: mstep@umich.edu
AB  - Whether households  smooth' consumption in response to predictable changes in income is an open and contentious question. This paper examines 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 percent increase in discretionary income due to a loan repayment leads to a 2 to 3.5 percent increase in non-durable consumption. Additional analysis suggests that these findings may be explained by the presence of borrowing constraints.
ER  -