The Level and Composition of Consumption Over the Business Cycle: The Role of "Quasi-Fixed" Expenditures

Kerwin Kofi Charles and Melvin Stephens

No 12388, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how the level and composition of household expenditures changes over the business cycle for households at different positions in the income distribution. Using data from the Consumer Expenditure Survey, we find that transitory, state-specific increases in unemployment causes lower income groups to lower their total expenditure outlays, contrary to the prediction of the textbook account of consumption behavior. In addition, in bad economic times these groups raise the share of their total outlays devoted to relative fixed outlays like home or car payments. These adjustments are primarily concentrated among reductions in outlays devoted to entertainment and personal care expenditures. We find no similar effects for households at higher positions in the income distribution. It is difficult to attribute these differences across households to differences in credit constraints, both because the specific results for credit holdings are imprecisely estimated and because income losses experienced by higher SES households are so small that there is, for them, little need to adjust consumption.

JEL-codes: D12 E21 E24 (search for similar items in EconPapers)
Date: 2006-07
New Economics Papers: this item is included in nep-bec, nep-cba and nep-mac
Note: EFG LS
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Citations: View citations in EconPapers (9)

Published as Blank, Danziger, Schoeni (eds.) Working and the Poor: How Economic and Policy Changes are Affecting Low Wage Workers. Russell Sage, 2006.

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