Do households smooth expenditure over anticipated income changes? Evidence from bonus payments to public employees in Japan

Masahiro Hori and Satoshi Shimizutani

Journal of the Japanese and International Economies, 2012, vol. 26, issue 3, 405-433

Abstract: This paper provides new evidence of consumers’ reaction to an anticipated sizable change in income. Until FY2002, Japanese public employees received predictable large bonus payments three times a fiscal year (in June, December, and March), but the March bonus was abolished in FY2003. We compare the seasonal patterns of public employees’ expenditure before and after the reform of the bonus payment schedule. Contrary to the prediction of the life cycle/permanent income hypothesis (LC/PIH), we find evidence that monthly patterns of household expenditure were significantly affected by the anticipated large change in income pattern. However, at closer inspection, this excess sensitivity of expenditure is observed only for expenditure subcategories of some durability, i.e., durables and semi-durables. Thus, while the LC/PIH does not appear to hold for expenditure (which we observe here), it may still hold for consumption.

Keywords: Life cycle/permanent income hypothesis; Excess sensitivity; Bonus payments; Family income and expenditure survey; Japan (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Working Paper: Do Households Smooth Expenditure over Anticipated Income Changes? Evidence from Bonus Payments to Public Employees in Japan (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jjieco:v:26:y:2012:i:3:p:405-433

DOI: 10.1016/j.jjie.2012.06.001

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