Once or Twice a Month? The Impact of Payment Frequency on Spending Behavior

Jani-Petri Laamanen, Tuomas Matikka and Tuuli Paukkeri

No 147, Working Papers from VATT Institute for Economic Research

Abstract: We study how the frequency of income payments affects consumption and spending behavior using plausibly exogenous variation across Finnish pension benefit recipients with different surname initials. We find that twice-a-month payments remove the large consumption and spending hikes widely documented to be associated with monthly payments. Compared to those paid twice, those paid once a month end up spending more monthly instead of cutting back on spending late in the month. Consequently, once-a-month payments lead to saving less (or borrowing more), even if the significant extra spending on expensive durable goods is considered as saving.

Keywords: consumption; spending; consumption smoothing; household finance; time preference; payment frequency; social security; pensions; Social security; taxation and income distribution; D12; D14; D15; H55; I38; fi=Sosiaaliturva|sv=Social trygghet|en=Social security|; fi=Tulonjako ja eriarvoisuus|sv=Inkomstfördelning och ojämlikhet|en=Income distribution and inequality| (search for similar items in EconPapers)
Date: 2022
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