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. In standard precautionary savings models these households should not only display higher marginal propensities to consume (MPCs), but also higher future consumption growth. In contrast, we see from the PSID that such “hand-to-mouth” households do not display higher growth in spending. They also exhibit greater volatility of spending and adjust their 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 persistent differences across households, not current assets, that predict low consumption growth and other spending differences for the hand-to-mouth households. 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, many poor hand-to-mouth must be relatively impatient and have a high inter-temporal elasticity of substitution (IES). The model shows that preferences predominantly explain the higher MPCs for low-asset households. Preference heterogeneity notably increases the spending impact of fiscal transfers, but only if targeted, while reducing that from interest rate cuts.

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: View citations in EconPapers (41)

Downloads: (external link)
http://www.nber.org/papers/w26643.pdf (application/pdf)

Related works:
Working Paper: Who Are the Hand-to-Mouth? (2019)
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

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 ().