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Paycheque Receipt and the Timing of Consumption

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  • Stephens Melvin

Abstract

This article examines the consumption response to monthly paycheque receipt. Since the amount and arrival date of paycheques are known in advance, the receipt of a paycheque does not coincide with the receipt of new information. Under the basic rational expectations Life-Cycle/Permanent Income Hypothesis, household consumption should not respond to paycheque arrival. Using data from the UK's Family Expenditure Survey, this article finds that household consumption is excessively sensitive to paycheque receipt. The results cannot be explained by any underlying monthly expenditure fluctuations common to all households. The presence of liquidity constraints as measured by wealth and age can account for the excess sensitivity results. Copyright 2006 The Author. Journal compilation Royal Economic Society 2006.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 116 (2006)
Issue (Month): 513 (07)
Pages: 680-701

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Handle: RePEc:ecj:econjl:v:116:y:2006:i:513:p:680-701

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Cited by:
  1. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  2. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "The reaction of consumer spending and debt to tax rebates: Evidence from consumer credit data," CFS Working Paper Series 2008/01, Center for Financial Studies (CFS).
  3. Theresa Kuchler, 2013. "Sticking to Your Plan: Hyperbolic Discounting and Credit Card Debt Paydown," Discussion Papers 12-025, Stanford Institute for Economic Policy Research.
  4. Sumit Agarwal & Chunlin Liu & Nicholas Souleles, 2007. "The reaction of consumer spending and debt to tax rebates; evidence from consumer credit data," Working Papers 07-34, Federal Reserve Bank of Philadelphia.
  5. Parsons, Christopher A. & Van Wesep, Edward D., 2013. "The timing of pay," Journal of Financial Economics, Elsevier, vol. 109(2), pages 373-397.
  6. Scholnick, Barry, 2009. "Credit card use after the final mortgage payment: does the magnitude of income shocks matter?," Working Paper Series 1142, European Central Bank.
  7. Giovanni Mastrobuoni & Matthew Weinberg, 2007. "Heterogeneity in Intra-Monthly Consumption Patterns, Self-Control, and Savings at Retirement," Working Papers 65, Princeton University, Department of Economics, Center for Economic Policy Studies..
  8. Dobkin, Carlos & Puller, Steven L., 2007. "The effects of government transfers on monthly cycles in drug abuse, hospitalization and mortality," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2137-2157, December.
  9. Damon, Amy L. & King, Robert P. & Leibtag, Ephraim, 2013. "First of the month effect: Does it apply across food retail channels?," Food Policy, Elsevier, vol. 41(C), pages 18-27.
  10. Todd, Jessica E., 2013. "Revisiting the SNAP Cycle of Food Intake: Investigation Heterogeneity and Diet Quality," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150295, Agricultural and Applied Economics Association.

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