Using home maintenance and repairs to smooth variable earnings
AbstractRecent research indicates that the marked increase in U.S. income inequality over the last twenty-five years has not been matched by a similar increase in consumption inequality. This paper examines the role of saving/dissaving in a house as a vehicle for consumption smoothing. Data from the American Housing Survey show that expenditures on home maintenance and repairs are economically significant, amounting to roughly $1,750 per household each year. This figure is comparable to the labor literature estimates that put households' average annual transitory income variance at about $2,200. Our calculations show a significant elasticity of maintenance and repair expenditures to transitory income shocks. The elasticities are higher for less well educated households, which are more likely to be liquidity constrained than their better educated counterparts.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 168.
Date of creation: 2003
Date of revision:
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- Joseph Gyourko & Joseph Tracy, 2006. "Using Home Maintenance and Repairs to Smooth Variable Earnings," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 736-747, November.
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