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Consumer Spending on Entertainment and the Great Recession

Hyeongwoo Kim () and Liping Gao

No auwp2017-07, Auburn Economics Working Paper Series from Department of Economics, Auburn University

Abstract: This paper empirically investigates the effects of economic recessions on consumers’ decision-making process for entertainment activities using the Consumer Expenditure Survey data during the Great Recession that began in December 2007. We employ the Probit model to study how changes in income influence the likelihood of making non-zero expenditures on entertainment activities. Recognizing the presence of a high degree of censoring, we also employ the Tobit model to assess the income effect on recreational activities. Income coefficient estimates are significantly positive in all years, confirming that entertainment is a normal good. However, we observe statistically significant decreases in the income coefficient during recession years in all three categories of entertainment activities from the Tobit model, while in two out of the three from the Probit model. The responsiveness of consumption to income changes decreases during recession years, which implies a sluggish adjustment in entertainment expenditures when economic distress is elevated.

Keywords: Consumer Expenditure Survey; Entertainment; Great Recession; Probit; Tobit (search for similar items in EconPapers)
JEL-codes: D12 J01 P46 (search for similar items in EconPapers)
Date: 2017-12
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