Mental Accounts and Consumption Sensitivity Across the Distribution of Liquid Assets

James Graham and Robert A McDowall

No 2024-07, Working Papers from University of Sydney, School of Economics

Abstract: We study consumption spending responses to predictable income using household-level data from a U.S. financial institution. Even for households with large liquid asset balances, we find no spending in anticipation of income receipt, substantial spending following receipt, and significant front-loading with respect to date of receipt. To rationalize these findings, we develop a tractable model of mental accounts where consumption choices are partitioned across current income and current assets. Our model reproduces the timing, magnitude, and cross-section of consumption responses observed in the data. Finally, we use the model to study the effectiveness of targeted and untargeted fiscal stimulus policies.

Keywords: Consumption; MPC; excess sensitivity; mental accounts; fi scal stimulus. (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://econ-wpseries.com/2024/202407.pdf

Related works:
Working Paper: Mental Accounts and Consumption Sensitivity Across the Distribution of Liquid Assets (2024)
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:syd:wpaper:2024-07

Access Statistics for this paper

More papers in Working Papers from University of Sydney, School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Vanessa Holcombe ().