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

PSC In The News

RSS Feed icon

Kimball's failed replication of Reinhart-Rogoff finding cited in argument for tempered public response to social science research results

Edin and Shaefer's book on destitute families in America reviewed in NYT

Johnston says rate of daily marijuana use among college students now greater than rate of daily cigarette smoking

Highlights

Deirdre Bloome wins ASA award for work on racial inequality and intergenerational transmission

Bob Willis awarded 2015 Jacob Mincer Award for Lifetime Contributions to the Field of Labor Economics

David Lam is new director of Institute for Social Research

Elizabeth Bruch wins Robert Merton Prize for paper in analytic sociology

Next Brown Bag

Monday, Oct 12
Joe Grengs, Policy & Planning for Social Equity in Transportation

Melvin Stephens, Jr photo

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

Publication Abstract

Stephens, Jr., 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