Income Changes and Consumption: Evidence from the 2013 Federal Government Shutdown

Constantine Yannelis and Scott Baker

No 372, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We use the 2013 federal government shutdown and rich data set from an online personal finance website to study the effects of changes in income on changes in consumption. The 2013 shutdown represented a significant and unanticipated income shock for federal government workers, with no direct effect on permanent income. We exploit both the differences between unaffected state employees and affected federal employees as well as between federal employees required to remain at work and those required to stay at home. Furthermore, we are able to discern various detailed types of household spending with widely varying elasticities. We find strong evidence for excess sensitivity of consumption patterns, violating the permanent income hypothesis. We demonstrate that this decline in spending can be largely explained by credit constraints, increased home production, and changes in time allocation. The results demonstrate the importance of liquidity and behavioral responses when constructing stimulus or social insurance policy.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2015/paper_372.pdf (application/pdf)

Related works:
Journal Article: Income Changes and Consumption: Evidence from the 2013 Federal Government Shutdown (2017)
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:red:sed015:372

Access Statistics for this paper

More papers in 2015 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().