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Paycheck Receipt and the Timing of Consumption

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  • Melvin Stephens Jr.

Abstract

This paper examines the consumption response to monthly paycheck receipt. Since the amount and arrival date of paychecks are known in advance, the receipt of a paycheck does not coincide with the receipt of new information. Under the basic rational expectations Life-Cycle/Permanent Income Hypothesis, household consumption should not respond to paycheck arrival. Using data from the United Kingdom's Family Expenditure Survey, this paper finds that household consumption is excessively sensitive to paycheck receipt. The results cannot be explained by any underlying monthly expenditure fluctuations common to all households. The presence of liquidity constraints as measured by wealth can account for the excess sensitivity results although the availability of credit cards cannot.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9356.

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Date of creation: Dec 2002
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Handle: RePEc:nbr:nberwo:9356

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Cited by:
  1. Shapiro, Jesse M., 2005. "Is there a daily discount rate? Evidence from the food stamp nutrition cycle," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 303-325, February.
  2. Huffman, David B. & Barenstein, Matias, 2004. "Riches to Rags Every Month? The Fall in Consumption Expenditures Between Paydays," IZA Discussion Papers 1430, Institute for the Study of Labor (IZA).
  3. Campo, Juan Carlos Chavez-Martin del, 2006. "On the Design of an Optimal Transfer Schedule with Time Inconsistent Preferences," Working Papers 127040, Cornell University, Department of Applied Economics and Management.
  4. repec:ebl:ecbull:v:8:y:2008:i:5:p:1-7 is not listed on IDEAS
  5. Damon, Amy L. & King, Robert P. & Leibtag, Ephraim S., 2006. "Household Food Expenditures Across Income Groups: Do Poor Households Spend Differently than Rich Ones?," Conference Papers 6643, University of Minnesota, Center for International Food and Agricultural Policy.
  6. William N. Evans & Timothy J. Moore, 2009. "The Short-Term Mortality Consequences of Income Receipt," NBER Working Papers 15311, National Bureau of Economic Research, Inc.
  7. Jacob L. Vigdor, 2004. "Liquidity Constraints and Housing Prices: Theory and Evidence from the VA Mortgage," NBER Working Papers 10611, National Bureau of Economic Research, Inc.
  8. Vigdor, Jacob L., 2006. "Liquidity constraints and housing prices: Theory and evidence from the VA Mortgage Program," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1579-1600, September.

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