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Household consumption through recent recessions

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Author Info

  • Thomas Crossley

    ()
    (Institute for Fiscal Studies and University of Cambridge)

  • Hamish Low

    ()
    (Institute for Fiscal Studies and Trinity College, Cambridge)

  • Cormac O'Dea

    ()
    (Institute for Fiscal Studies)

Abstract

This paper examines trends in household consumption and saving behaviour in each of the last three recessions in the UK. The 'Great Recession' has been different from those that occurred in the 1980s and 1990s. It has been both deeper and longer, but also the composition of the cutbacks in consumption expenditures differs, with a greater reliance on cuts to non durable expenditure than was seen in previous recessions, and the distributional pattern across individuals differs. The young have cut back expenditure more than the old, as have mortgage holders compared to renters. By contrast, the impact of the recession has been similar across education groups. We present evidence that suggests that two aspects of fiscal policy in the UK in 2008 and 2009- the temporary reduction in the rate of VAT and a car scrappage scheme- had some success in encouraging households to increase durable purchases.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W12/13.

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Date of creation: Aug 2012
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Handle: RePEc:ifs:ifsewp:12/13

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Keywords: Consumption; Spending; Recessions;

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References

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  1. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  2. Finkelstein, Amy N. & Luttmer, Erzo F. P. & Notowidigdo, Matthew J., 2009. "Approaches to Estimating the Health State Dependence of the Utility Function," Working Paper Series rwp09-002, Harvard University, John F. Kennedy School of Government.
  3. Paul Gregg & Jonathan Wadsworth, 2010. "Employment in the 2008–2009 recession," Economic and Labour Market Review, Palgrave Macmillan, vol. 4(8), pages 37-43, August.
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  5. Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January.
  6. Bar-Ilan, Avner & Blinder, Alan S, 1992. "Consumer Durables: Evidence on the Optimality of Usually Doing Nothing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(2), pages 258-72, May.
  7. Angus Deaton & Christina Paxson, 1993. "Intertemporal Choice and Inequality," NBER Working Papers 4328, National Bureau of Economic Research, Inc.
  8. Maria Concetta Chiuri & Tullio Jappelli, 2006. "Do the elderly reduce housing equity? An international comparison," CSEF Working Papers 158, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  9. Sarah Smith, 2006. "The retirement-consumption puzzle and involuntary early retirement: Evidence from the British Household Panel Survey," The Centre for Market and Public Organisation 06/138, Department of Economics, University of Bristol, UK.
  10. repec:ese:iserwp:2012-05 is not listed on IDEAS
  11. Richard Blundell & Ben Etheridge, 2010. "Consumption, Income and Earnings Inequality in Britain," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 76-102, January.
  12. Raffaele Miniaci & Chiara Monfardini & Guglielmo Weber, 2003. "Is there a retirement consumption puzzle in Italy?," IFS Working Papers W03/14, Institute for Fiscal Studies.
  13. Mark Aguiar & Erik Hurst, 2005. "Consumption versus Expenditure," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 919-948, October.
  14. Allan Layton & Anirvan Banerji, 2003. "What is a recession?: A reprise," Applied Economics, Taylor & Francis Journals, vol. 35(16), pages 1789-1797.
  15. Martin Browning & Thomas F. Crossley, 2004. "Shocks, stocks and socks: smoothing consumption over a temporary income loss," CAM Working Papers 2004-05, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  16. Erich Battistin & Agar Brugiavini & Enrico Rettore & Guglielmo Weber, 2008. "The retirement consumption puzzle: evidence from a regression discontinuity approach," IFS Working Papers W08/05, Institute for Fiscal Studies.
  17. Richard Blundell, 2009. "Assessing the Temporary VAT Cut Policy in the UK," Fiscal Studies, Institute for Fiscal Studies, vol. 30(1), pages 31-38, 03.
  18. Martin Browning & Thomas F. Crossley, 2000. "Luxuries Are Easier to Postpone: A Proof," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1022-1026, October.
  19. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, November.
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Cited by:
  1. Sule Alan & Thomas Crossley & Hamish Low, 2012. "Saving on a Rainy Day, Borrowing for a Rainy Day," Koç University-TUSIAD Economic Research Forum Working Papers 1212, Koc University-TUSIAD Economic Research Forum.
  2. Alessandro Bucciol & Raffaele Miniaci, 2012. "Financial Risk Aversion, Economic Crises and Past Risk Perception," Working Papers 28/2012, University of Verona, Department of Economics.

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