NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Asymmetric Consumption Response of Households to Positive and Negative Anticipated Cash Flows

Brian Baugh, Itzhak Ben-David, Hoonsuk Park, Jonathan A. Parker

NBER Working Paper No. 25086
Issued in September 2018, Revised in January 2020
NBER Program(s):Corporate Finance Program, Economic Fluctuations and Growth Program, Monetary Economics Program

In data from an account aggregator, households increase consumption when they receive (expected) tax refunds, as if they are liquidity constrained. However, this behavior is not due to liquidity constraints or hand-to-mouth behavior. These same households smooth consumption when making payments in other years, primarily by transferring funds among liquid accounts. Further, even households carrying credit card debt smooth consumption when making payments, and even high-liquidity households spend out of refunds. Thus the households we study follow a heuristic of spending out of increases in liquidity, while at the same time acting in anticipation of payments to maintain stable consumption.

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Document Object Identifier (DOI): 10.3386/w25086

 
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