EconPapers    
Economics at your fingertips  
 

Who Are the Hand-to-Mouth?

Mark Aguiar, Mark Bils and Corina Boar

No 26643, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many households hold little wealth, especially liquid wealth. In precautionary savings models, absent preference heterogeneity, these households should display not only higher marginal propensities to consume (MPCs), but also lower average propensities to consume (APCs) and higher future consumption growth. We see from the PSID that such “hand-to-mouth” households actually display higher APCs and no faster spending growth. They also adjust spending to a greater extent through the number of categories consumed. Consistent with a role for preference heterogeneity, the panel data show that it is the propensity to be hand-to-mouth, not current assets, that predicts high APC, low consumption growth, and other spending differences for the hand-to-mouth. To identify the extent of preference heterogeneity, we consider the model of Kaplan and Violante (2014) with both liquid and illiquid assets, but allow heterogeneity in preferences. To match the data, the vast majority of poor hand-to-mouth must be impatient and have a high intertemporal elasticity of substitution (IES). The richer, but illiquid, hand-to-mouth are disproportionately high IES, though not impatient. Thus a high IES is a key determinant of assets for households typically viewed as hand-to-mouth. The model additionally shows that preferences play a prominent role in differences in MPCs across consumers.

JEL-codes: E21 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-mac
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w26643.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:26643

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w26643
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2020-05-05
Handle: RePEc:nbr:nberwo:26643