Transitory income changes and consumption smoothing: Evidence from Mexico

Manuela Angelucci, Carlos Chiapa, Silvia Prina and Irvin Rojas

Journal of Public Economics, 2024, vol. 230, issue C

Abstract: We test if 3534 beneficiaries of PROSPERA, Mexico’s cash transfer program, smooth food consumption before and after the date of the transfer receipt, and if consumption smoothing is costly. The transfer is an anticipated and transitory income shock and, thus, the PIH predicts that consumption should be smooth before and after its receipt. We find that food consumption does not change the days before and after the transfer date and we find no evidence that households bear costs to smooth consumption. The transfer’s cost of access, which encompasses participants’ distaste for using debit cards and costly ATM withdrawals, may help time-inconsistent and less experienced debit card holders smooth consumption.

Keywords: Consumption smoothing; Permanent income hypothesis; Payday (search for similar items in EconPapers)
JEL-codes: D12 D91 E21 I12 I38 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Transitory Income Changes and Consumption Smoothing: Evidence from Mexico (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:230:y:2024:i:c:s0047272723001950

DOI: 10.1016/j.jpubeco.2023.105013

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