The Reaction of Household Expenditure to an Anticipated Income Change: Clean Evidence from Bonus Payments to Public Employees in Japan

Masahiro Hori and Satoshi Shimizutani

ESRI Discussion paper series from Economic and Social Research Institute (ESRI)

Abstract: Exploiting an ideal experiment situation, this paper provides clear evidence of consumption smoothing against an anticipated income change. Until FY2002, Japanese public employees received large and predictable bonus payments three times a year, but the third bonus in March was abolished in FY2003, with advance notice. Using micro data, we explore how the change in the bonus payment pattern altered the seasonality of public employees' consumption. We find that the impact of the change in bonus patterns on consumption seasonality is negligibly small, which is consistent with the life-cycle/permanent-income hypothesis and earlier studies analyzing large and regular predictable income movements.

Pages: 26 pages
Date: 2007-11
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Citations: View citations in EconPapers (2)

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