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Social Security Benefits, Consumption Expenditure, and the Life Cycle Hypothesis

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Author Info
Wilcox, David W
Abstract

This paper examines the impact of changes in social security benefits on aggregate consumption expenditure. Under the null hypothesis, there should be no contemporaneous effect at the monthly frequency because increases in benefits have always been announced at least six weeks prior to payment. The paper develops overwhelming evidence--contrary to the null--that benefits have affected aggregate spending. The results have strong implications for several important issues, including Ricardian equivalence, government policy irrelevance, and the excess sensitivity of consumption to changes in income. Copyright 1989 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 97 (1989)
Issue (Month): 2 (April)
Pages: 288-304
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Handle: RePEc:ucp:jpolec:v:97:y:1989:i:2:p:288-304

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  1. Martin Browning & M. Dolores Collado, 2001. "The Response of Expenditures to Anticipated Income Changes: Panel Data Estimates," American Economic Review, American Economic Association, vol. 91(3), pages 681-692, June. [Downloadable!] (restricted)
    Other versions:
  2. Melvin Stephens Jr., 2003. ""3rd of tha Month": Do Social Security Recipients Smooth Consumption between Checks?," American Economic Review, American Economic Association, vol. 93(1), pages 406-422, March. [Downloadable!] (restricted)
  3. Djankov, Simeon, 1999. "Restructuring of insider-dominated firms," Policy Research Working Paper Series 2046, The World Bank. [Downloadable!]
  4. Geng Li, 2007. "Transaction costs and consumption," Finance and Economics Discussion Series 2007-38, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Melvin Stephens Jr., 2005. "The Impact of the 1972 Social Security Benefit Increase on Household Consumption," Working Papers wp095, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  6. Matthew D. Shapiro & Joel Slemrod, 2001. "Consumer Response to Tax Rebates," NBER Working Papers 8672, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. George A. Akerlof, 2007. "The Missing Motivation in Macroeconomics," American Economic Review, American Economic Association, vol. 97(1), pages 5-36, March.
  8. Sumit Agarwal & Chunlin Liu & Nicholas S. Souleles, 2007. "The reaction of consumer spending and debt to tax rebates – evidence from consumer credit data," Working Paper Series WP-07-10, Federal Reserve Bank of Chicago. [Downloadable!]
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  9. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September. [Downloadable!] (restricted)
  10. Eun Young Chah & Valerie A. Ramey & Ross M. Starr, 1991. "Liquidity Constraints and Intertemporal Consumer Optimization: Theory and Evidence From Durable Goods," NBER Working Papers 3907, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. David S. Johnson & Jonathan A. Parker & Nicholas S. Souleles, 2004. "Household Expenditure and the Income Tax Rebates of 2001," NBER Working Papers 10784, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September. [Downloadable!] (restricted)
  13. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer. [Downloadable!] (restricted)
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  14. Charles Steindel, 2001. "The effect of tax changes on consumer spending," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Dec. [Downloadable!]
  15. Katherine Grace Carman & Jagadeesh Gokhale & Laurence J. Kotlikoff, 2003. "The Impact on Consumption and Saving of Current and Future Fiscal Policies," NBER Working Papers 10085, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Katherine L. Milkman & John Leonard Beshears & Todd Rogers & Max H. Bazerman, 2007. "Mental Accounting and Small Windfalls: Evidence from an Online Grocer," Working Papers 08-024, Harvard Business School, revised Mar 2008. [Downloadable!]
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