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

PSC In The News

RSS Feed icon

H. Luke Shaefer and colleagues argue for a universal child allowance

Hindustan Times points out high value of H-1B visas for US innovation, welfare, and tech firm profits

Novak, Geronimus, Martinez-Cardoso: Threat of deportation harmful to immigrants' health

More News

Highlights

Heather Ann Thompson wins Pulitzer Prize for book on Attica uprising

Lam explores dimensions of the projected 4 billion increase in world population before 2100

ISR's Nick Prieur wins UMOR award for exceptional contribution to U-M's research mission

How effectively can these nations handle outside investments in health R&D?

More Highlights

Next Brown Bag

Mon, April 10, 2017, noon:
Elizabeth Bruch

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