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Transitory Income Changes and Consumption Smoothing: Evidence from Mexico

Author

Listed:
  • Angelucci, Manuela

    (University of Texas at Austin)

  • Chiapa, Carlos

    (Analysis Group)

  • Prina, Silvia

    (Northeastern University)

  • Rojas, Irvin

    (Centro de Investigación y Docencia Económicas)

Abstract

We study how 3,534 beneficiaries of PROSPERA, Mexico's cash transfer program, smooth food consumption around the transfer payday, an anticipated and transitory income shock. We find that food consumption and food security do not change around the transfer payday, including for recipients with impatient or time-inconsistent preferences and households with higher than median transfer dependence. Conversely, health and employment shocks (unexpected and less transitory income changes) reduce food security. The transfer's relative illiquidity may act as a commitment device, helping time-inconsistent and less experienced debit card holders smooth consumption.

Suggested Citation

  • Angelucci, Manuela & Chiapa, Carlos & Prina, Silvia & Rojas, Irvin, 2021. "Transitory Income Changes and Consumption Smoothing: Evidence from Mexico," IZA Discussion Papers 14452, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14452
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    Cited by:

    1. Marks, Mindy & Prina, Silvia & Tahaj, Redina, 2023. "Short-Term Labor Supply Response to the Timing of Transfer Payments: Evidence from the SNAP Program," IZA Discussion Papers 16299, Institute of Labor Economics (IZA).
    2. Marks, Mindy & Prina, Silvia & Gernhardt, Roy, 2023. "Government Shutdown and SNAP Disbursements: Effects on Household Expenditures," IZA Discussion Papers 16452, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    consumption smoothing; permanent income hypothesis; payday;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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