Home > Publications . Search All . Browse All . Country . Browse PSC Pubs . PSC Report Series

PSC In The News

RSS Feed icon

Smock cited in amicus brief for Supreme Court case on citizenship rights for foreign-born children of unwed parents

Levy, Buchmueller and colleagues examine Medicaid expansion's impact on ER visits

ISR data show large partisan gap in consumer expectations for economy

More News

Highlights

MiCDA Research Fellowship - applications due July 21, 2017

U-M awarded $58 million to develop ideas for preventing and treating health problems

Bailey, Eisenberg , and Fomby promoted at PSC

Former PSC trainee Eric Chyn wins PAA's Dorothy S. Thomas Award for best paper

More Highlights

Melvin Stephens, Jr photo

The consumption response to predictable changes in discretionary income: Evidence from the repayment of vehicle loans

Publication Abstract

Stephens, Melvin. 2008. "The consumption response to predictable changes in discretionary income: Evidence from the repayment of vehicle loans." Review of Economics and Statistics, 90(2): 241-252.

Although the life cycle/permanent income hypothesis is the primary framework for understanding household consumption and savings decisions, only a few studies have used clearly identifiable income changes to test the basic predictions of the model. The estimates produced using this empirical strategy have yet to lead to a consensus of beliefs since the results have both favored and rejected the model. This paper contributes to this literature by examining the consumption reaction to predictable increases in discretionary income following the final payment of a vehicle loan. Using data from the Consumer Expenditure Survey, the results show that a 10% increase in discretionary income due to a loan repayment leads to a 2% to 3% increase in nondurable consumption. Additional analysis suggests that these findings may be explained by the presence of borrowing constraints.

DOI:10.1162/rest.90.2.241 (Full Text)

Licensed Access Link

Browse | Search : All Pubs | Next