Household adjustment to economic shocks: Saving, consumption smoothing, and life satisfaction

Peter Tóth
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Peter Tóth: Národná banka Slovenska

Carpathian Stata Conference 2026 from Stata Users Group

Abstract: This presentation examines how households adjust to large economic shocks and how these responses shape life satisfaction. Using panel data from the Slovak household finance and consumption survey combined with district-level variation in COVID-19 severity, the analysis distinguishes between exposure to the shock, household adjustment, and the transmission of these adjustments into life satisfaction. Empirically, the presentation combines a difference-in-differences design with a mediation framework to examine how shock severity affected income, consumption, wealth, and saving behavior and how these changes were reflected in life satisfaction. The results reveal substantial and uneven economic disruption beneath stable average life satisfaction. Income losses and consumption adjustments are concentrated toward the upper end of the preshock income and consumption distributions, indicating marked heterogeneity in exposure. Households most affected by income losses adjust through saving decumulation and reductions in discretionary consumption, while basic consumption remains comparatively stable. These patterns are consistent with intertemporal consumption smoothing. Despite substantial economic adjustment, the transmission of these changes into life satisfaction is limited. The resulting indirect effects operating through income, consumption, and wealth are small and statistically insignificant. The findings show that the absence of an average effect reflects attenuated transmission rather than limited economic disruption. More broadly, the results underscore that the welfare consequences of large shocks depend not only on exposure but also on the mechanisms through which households adjust and absorb disruption.

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