This paper presents new tests of the permanent income hypothesis and other widely used models of household behavior using data from the labor market. We estimate the “excess sensitivity” of job search behavior to cash-on-hand using sharp discontinuities in eligibility for severance pay and extended unemployment insurance (UI) benefits in Austria. Analyzing data for over one-half million job losers, we obtain three empirical results: (1) a lump-sum severance payment equal to two months of earnings reduces the job-finding rate by 8-12 % on average; (2) an extension of the potential duration of UI benefits from 20 weeks to 30 weeks similarly lowers job-finding rates in the first 20 weeks of search by 5-9%; and (3) increases in the duration of search induced by the two programs have little or no effect on subsequent job match quality. Using a search theoretic model, we show that estimates of the relative effect of severance pay and extended benefits can be used to calibrate and test a wide set of intertemporal models. Our estimates of this ratio are inconsistent with the predictions of a standard permanent income model, as well as naive “rule of thumb” behavior. The representative job searcher in our data is 70 % of the way between the permanent income benchmark and credit-constrained behavior in terms of sensitivity to cash-on-hand. We are extremely grateful to Rudolph Winter-Ebmer and Jospeh Zweimüller for assistance in obtaining the data

Home energy costs comprise a significant fraction of household budgets, particularly for poor families. This paper analyzes how household consumption responds to changes in home energy outlays over the course of the year. We specify Euler equations describing nondurable and food consumption and then rely on changes in energy prices and weather severity to identify exogenous changes in disposable income. We distinguish changes in energy spending that are anticipated, for instance because it is winter in the Northeast, from those that are unanticipated, for instance because it is an unusually cold winter. We find little evidence of excess sensitivity to anticipated variation among households in the Consumer Expenditure Survey 1990-2002, even among those without substantial financial assets. However, the latter group experiences large consumption reactions to unanticipated changes.

anonymous referees for many helpful comments and suggestions. All errors are mine. This research

for collecting and providing to me various data series from Goskomstat. I gratefully acknowledge financial support from the National Institute on Child Health and Human Development. William Davidson Institute Working Paper 412 This paper examines the extent to which consumption in Russian households responds to exogenous income shocks. During the time period studied in this paper (1994 – 1998), Russia experienced two major economic crises. Both featured extreme movements in the real ruble-dollar exchange rate. The price of oil, which is typically thought to have a strong effect on the Russian economy, was also quite volatile during this time period. This paper exploits these large changes in oil prices and exchange rates, as well as community-level variations in wage and pension arrears, to identify exogenous shocks to household income. Using representative panel data on urban households from the Russian Longitudinal Monitoring Survey, I find that a household which experiences an exogenous shock of 10 % of its total income changes both its food and total non-durable expenditure by 7-11%. Most evidence indicates that these shocks are transitory in nature and thus the traditional Life Cycle/Permanent Income Hypothesis model is firmly

This paper analyzes the monthly patterns of adverse outcomes due to the consumption of illegal drugs by recipients of government transfer payments. We find evidence that certain subpopulations on government cash aid significantly increase their consumption of drugs when their checks arrive at the beginning of the month, and as a result, experience adverse events including hospitalization and death. Using data from California, we find that the overall rate of drug related hospital admissions increases abruptly at the beginning of the month, with admissions increasing 23 % during the first five days of the month. We find that this cycle is driven largely by recipients of Supplemental Security Income (SSI). SSI recipients also experience an abrupt 22 % increase in within hospital mortality after receiving their checks. These findings suggest that “full wallets” adversely affect some aid recipients, and that policymakers should explore alternate disbursement regimes such as a staggered disbursement schedule or inkind support that have the potential to reduce the rate of adverse events.

Abstract not found

Recent theoretical contributions have suggested consumption externalities, or peergroup effects, as a potential explanation for some of the puzzles in macroeconomics and finance. However, the empirical relevance of peer effects for intertemporal consumption choice is a completely open question. To shed some light on the issue, we derive an extension of the standard life-cycle model that allows for consumption externalities. The analysis is complicated by the challenge of disentangling actual peer effects from merely correlated effects operating through common features or shocks within peer groups. We show how to conduct reliable inference under these circumstances based on within-group equilibrium conditions that give rise to a social multiplier. This approach can be understood as an adaptation of Manski’s "reflection problem framework " to the case of dynamic models with endogenous regressors. We estimate our model using US panel data from the PSID. While there is strong predictable consumption co-movement within peer groups, the evidence for true consumption externalities vanishes once correlated effects are adequately accounted for.

Other chapters in this volume have investigated inequality in earnings and household income. In this chapter we make the case that measures of consumption inequality are useful in addition to, or possibly instead of, measures of income inequality. We then outline the steps that are necessary to measure consumption inequality,

Can subjective mortality expectations and stated

This paper presents the partial analytical solution to a model of periodic consumption that incorporates imperfect capital markets and uncertainty. Our model assumes that consumption decisions occur more frequently than income receipts. We show that the week-specific consumption functions can be ordered. At low levels of wealth these functions exhibit a "u-shaped" pattern between income receipts. We show analytically that changes in the level of the borrowing constraint affect only the level of consumption function and not the MPC, whilst mean-preserving changes in uncertainty affect both.