NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Michael Gelman

Robert Day School of Economics and Finance
Claremont McKenna College
Claremont, CA 91711

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Claremont McKenna College

NBER Working Papers and Publications

April 2019Rational Illiquidity and Excess Sensitivity: Theory and Evidence from Income Tax Withholding and Refunds
with Shachar Kariv, Matthew D. Shapiro, Dan Silverman: w25757
There is a tight relationship between having low liquidity and a high marginal propensity to consume both in theoretical models and in econometric evidence about behavior. This paper analyzes the theory and behavior surrounding income tax withholding and refunds. It develops a model where rational cash management with asymmetric cost of increasing or decreasing liquidity endogenizes the relationship between illiquidity and excess sensitivity. The analysis accounts for the finding that households tend to spend tax refunds as if they were liquidity constrained despite the fact that they could increase liquidity by reducing withholding. The model’s predictions are supported by evidence from a large panel of individuals.
December 2016The Response of Consumer Spending to Changes in Gasoline Prices
with Yuriy Gorodnichenko, Shachar Kariv, Dmitri Koustas, Matthew D. Shapiro, Dan Silverman, Steven Tadelis: w22969
This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sudden, large drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, high-frequency transaction-level data for a large panel of individuals. The estimated marginal propensity to consume (MPC) out of unanticipated, permanent shocks to income is approximately one. This estimate takes into account the elasticity of demand for gasoline and potential slow adjustment to changes in prices. The high MPC implies that changes in gasoline prices have large aggregate effects.
March 2015How Individuals Respond to a Liquidity Shock: Evidence from the 2013 Government Shutdown
with Shachar Kariv, Matthew D. Shapiro, Dan Silverman, Steven Tadelis: w21025
Using comprehensive account records, this paper examines how individuals adjusted spending and saving in response to a temporary drop in liquidity due to the 2013 U.S. government shutdown. The shutdown cut paychecks by 40% for affected employees, which was recovered within 2 weeks. Because the shutdown affected only the timing of payments, it provides a distinctive experiment allowing estimates of the response to a liquidity shock holding income constant. Spending dropped sharply, implying a naïve estimate of 58 cents less spending for every dollar of lost liquidity. This estimate overstates the consumption response. While many individuals had low liquid assets, they used multiple sources of short-term liquidity to smooth consumption. Sources of short-term liquidity include delaying recurr...

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