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Mental Accounts and Consumption Sensitivity across the Distribution of Liquid Assets

Author

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  • James Graham
  • Robert A. McDowall

Abstract

We study consumption spending responses to predictable income using household-level data from a US financial institution. Even for households with large liquid asset balances, we find no spending in anticipation of income receipt, substantial spending following receipt, and significant front-loading with respect to date of receipt. To rationalize these findings, we develop a tractable model of mental accounts where consumption choices are partitioned across current income and current assets. Our model reproduces the timing, magnitude, and cross-section of consumption responses observed in the data. Finally, we use the model to study the effectiveness of targeted and untargeted fiscal stimulus policies.

Suggested Citation

  • James Graham & Robert A. McDowall, 2026. "Mental Accounts and Consumption Sensitivity across the Distribution of Liquid Assets," American Economic Journal: Macroeconomics, American Economic Association, vol. 18(1), pages 1-33, January.
    • Handle: RePEc:aea:aejmac:v:18:y:2026:i:1:p:1-33
    DOI: 10.1257/mac.20220200
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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