The Consumption Response to Predictable Changes in Discretionary Income: Evidence from the Repayment of Vehicle Loans

Melvin Stephens

No 9976, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D91 (search for similar items in EconPapers)
Date: 2003-09
Note: EFG
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Citations: View citations in EconPapers (12)

Published as Stephens Jr., Melvin. "The Consumption Response to Predictable Changes in Discretionary Income: Evidence from the Repayment of Vehicle Loans." The Review of Economics and Statistics 90, 2 (May 2008): 241-252.

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Journal Article: The Consumption Response to Predictable Changes in Discretionary Income: Evidence from the Repayment of Vehicle Loans (2008)
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