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Do households smooth expenditure over anticipated income changes? Evidence from bonus payments to public employees in Japan

  • Hori, Masahiro
  • Shimizutani, Satoshi

This paper provides new evidence of consumers’ reaction to an anticipated sizable change in income. Until FY2002, Japanese public employees received predictable large bonus payments three times a fiscal year (in June, December, and March), but the March bonus was abolished in FY2003. We compare the seasonal patterns of public employees’ expenditure before and after the reform of the bonus payment schedule. Contrary to the prediction of the life cycle/permanent income hypothesis (LC/PIH), we find evidence that monthly patterns of household expenditure were significantly affected by the anticipated large change in income pattern. However, at closer inspection, this excess sensitivity of expenditure is observed only for expenditure subcategories of some durability, i.e., durables and semi-durables. Thus, while the LC/PIH does not appear to hold for expenditure (which we observe here), it may still hold for consumption.

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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 26 (2012)
Issue (Month): 3 ()
Pages: 405-433

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Handle: RePEc:eee:jjieco:v:26:y:2012:i:3:p:405-433
DOI: 10.1016/j.jjie.2012.06.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622903

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  13. Hori Masahiro & Shimizutani Satoshi, 2009. "The Response of Household Expenditure to Anticipated Income Changes: Bonus Payments and the Seasonality of Consumption in Japan," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-22, August.
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