IDEAS home Printed from https://ideas.repec.org/p/esj/esridp/191.html
   My bibliography  Save this paper

The Reaction of Household Expenditure to an Anticipated Income Change: Clean Evidence from Bonus Payments to Public Employees in Japan

Author

Listed:
  • HORI Masahiro
  • SHIMIZUTANI Satoshi

Abstract

Exploiting an ideal experiment situation, this paper provides clear evidence of consumption smoothing against an anticipated income change. Until FY2002, Japanese public employees received large and predictable bonus payments three times a year, but the third bonus in March was abolished in FY2003, with advance notice. Using micro data, we explore how the change in the bonus payment pattern altered the seasonality of public employees' consumption. We find that the impact of the change in bonus patterns on consumption seasonality is negligibly small, which is consistent with the life-cycle/permanent-income hypothesis and earlier studies analyzing large and regular predictable income movements.

Suggested Citation

  • HORI Masahiro & SHIMIZUTANI Satoshi, 2007. "The Reaction of Household Expenditure to an Anticipated Income Change: Clean Evidence from Bonus Payments to Public Employees in Japan," ESRI Discussion paper series 191, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esj:esridp:191
    as

    Download full text from publisher

    File URL: http://www.esri.go.jp/jp/archive/e_dis/e_dis200/e_dis191a.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Martin Browning & M. Dolores Collado, 2001. "The Response of Expenditures to Anticipated Income Changes: Panel Data Estimates," American Economic Review, American Economic Association, vol. 91(3), pages 681-692, June.
    2. HORI Masahiro & SHIMIZUTANI Satoshi, 2002. "Micro Data Studies on Japanese Household Consumption," ESRI Discussion paper series 015, Economic and Social Research Institute (ESRI).
    3. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters,in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
    4. Shapiro, Matthew D & Slemrod, Joel, 1995. "Consumer Response to the Timing of Income: Evidence from a Change in Tax Withholding," American Economic Review, American Economic Association, vol. 85(1), pages 274-283, March.
    5. repec:fth:harver:1435 is not listed on IDEAS
    6. Nicholas S. Souleles & Jonathan A. Parker & David S. Johnson, 2006. "Household Expenditure and the Income Tax Rebates of 2001," American Economic Review, American Economic Association, vol. 96(5), pages 1589-1610, December.
    7. Wilcox, David W, 1989. "Social Security Benefits, Consumption Expenditure, and the Life Cycle Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 288-304, April.
    8. George A. Akerlof, 2007. "The Missing Motivation in Macroeconomics," American Economic Review, American Economic Association, vol. 97(1), pages 5-36, March.
    9. Nicholas S. Souleles, 1999. "The Response of Household Consumption to Income Tax Refunds," American Economic Review, American Economic Association, vol. 89(4), pages 947-958, September.
    10. Paxson, Christina H, 1993. "Consumption and Income Seasonality in Thailand," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 39-72, February.
    11. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
    12. Shea, John, 1995. "Union Contracts and the Life-Cycle/Permanent-Income Hypothesis," American Economic Review, American Economic Association, vol. 85(1), pages 186-200, March.
    13. Souleles, Nicholas S., 2002. "Consumer response to the Reagan tax cuts," Journal of Public Economics, Elsevier, vol. 85(1), pages 99-120, July.
    14. Chang-Tai Hsieh, 2003. "Do Consumers React to Anticipated Income Changes? Evidence from the Alaska Permanent Fund," American Economic Review, American Economic Association, vol. 93(1), pages 397-405, March.
    15. Chaudhuri, S. & Paxson, C., 1993. "Consumption Smoothing and Income Seasonality in Rural India," Papers 173, Princeton, Woodrow Wilson School - Development Studies.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Shimizutani, Satoshi, 2012. "Quality growth: New evidence from Japanese household-level data," Economics Letters, Elsevier, vol. 114(1), pages 76-79.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:esj:esridp:191. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (KAWAMOTO Takuma). General contact details of provider: http://edirc.repec.org/data/esrgvjp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.