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The consumption response to minimum wage increases

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Author Info

  • Daniel Aaronson
  • Sumit Agarwal
  • Eric French

Abstract

This paper presents evidence that spending increases more than income, and thus debt rises, in households with minimum wage workers following a minimum wage hike. Furthermore, we show that the size, timing, persistence, and composition of spending is inconsistent with the basic certainty equivalent life cycle model. However, our findings are consistent with a model where households can borrow against part of the value of their durable goods. ; Preliminary and incomplete.

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File URL: http://www.chicagofed.org/digital_assets/publications/working_papers/2007/wp2007_23.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-07-23.

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Date of creation: 2008
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Handle: RePEc:fip:fedhwp:wp-07-23

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Related research

Keywords: Minimum wage ; Debt;

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References

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  2. 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.
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Cited by:
  1. Fabrizio Perri & Dirk Krueger, 2009. "How does Household Consumption Respond to Income Shocks?," 2009 Meeting Papers 14, Society for Economic Dynamics.

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