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Consumer Spending on Entertainment and the Great Recession

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  • Hyeongwoo Kim
  • Liping Gao

Abstract

This paper empirically investigates the effects of economic recessions on consumers’ decision-making process for entertainment activities using the Consumer Expenditure Survey data during the Great Recession that began in December 2007. We employ the Probit model to study how changes in income influence the likelihood of making non-zero expenditures on entertainment activities. Recognizing the presence of a high degree of censoring, we also employ the Tobit model to assess the income effect on recreational activities. Income coefficient estimates are significantly positive in all years, confirming that entertainment is a normal good. However, we observe statistically significant decreases in the income coefficient during recession years in all three categories of entertainment activities from the Tobit model, while in two out of the three from the Probit model. The responsiveness of consumption to income changes decreases during recession years, which implies a sluggish adjustment in entertainment expenditures when economic distress is elevated.

Suggested Citation

  • Hyeongwoo Kim & Liping Gao, 2017. "Consumer Spending on Entertainment and the Great Recession," Auburn Economics Working Paper Series auwp2017-07, Department of Economics, Auburn University.
    • Handle: RePEc:abn:wpaper:auwp2017-07
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    File URL: https://cla.auburn.edu/econwp/Archives/2017/2017-07.pdf
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    References listed on IDEAS

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    Cited by:

    1. MacDonald, Daniel & Dildar, Yasemin, 2020. "Social and psychological determinants of consumption: Evidence for the lipstick effect during the Great Recession," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 86(C).

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    More about this item

    Keywords

    Consumer Expenditure Survey; Entertainment; Great Recession; Probit; Tobit;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • P46 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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