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Using home maintenance and repairs to smooth variable earnings

Joseph Gyourko () and Joseph Tracy ()

No 168, Staff Reports from Federal Reserve Bank of New York

Abstract: Recent research indicates that the marked increase in U.S. income inequality over the last twenty-five years has not been matched by a similar increase in consumption inequality. This paper examines the role of saving/dissaving in a house as a vehicle for consumption smoothing. Data from the American Housing Survey show that expenditures on home maintenance and repairs are economically significant, amounting to roughly $1,750 per household each year. This figure is comparable to the labor literature estimates that put households' average annual transitory income variance at about $2,200. Our calculations show a significant elasticity of maintenance and repair expenditures to transitory income shocks. The elasticities are higher for less well educated households, which are more likely to be liquidity constrained than their better educated counterparts.

Keywords: Income distribution; Consumption inequality; Households; Saving and investment; elasticity; household education (search for similar items in EconPapers)
JEL-codes: D12 E21 R21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2003-05-01
Note: For a published version of this report, see Joseph Tracy and Joseph Gyourko, "Using Home Maintenance and Repairs to Smooth Variable Earnings," Review of Economics and Statistics 88, no. 4 (November 2006): 736-47.
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