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

PSC In The News

RSS Feed icon

Lam looks at population and development in next 15 years in UN commission keynote address

Mitchell et al. find harsh family environments may magnify disadvantage via impact on 'genetic architecture'

Frey says Arizona's political paradoxes explained in part by demography

Highlights

NIH announces new policy for resubmissions (4/17/14)

2014 PAA Annual Meeting, May 1-3, Boston

PSC newsletter spring 2014 issue now available

Raghunathan appointed director of Survey Research Center

Next Brown Bag


PSC Brown Bags will return in the fall

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