scholarly journals On the welfare cost of consumption fluctuations in the presence of memorable goods

2020 ◽  
Vol 11 (4) ◽  
pp. 1177-1214 ◽  
Author(s):  
Rong Hai ◽  
Dirk Krueger ◽  
Andrew Postlewaite
Keyword(s):  
Borrowing Constraints ◽  
Welfare Cost ◽  
Income Shocks ◽  
Income Risk ◽  
Household Level ◽  
Nondurable Goods ◽  
Empirical Estimates ◽  
Percentage Points ◽  
Consumption Fluctuations ◽  
Excess Sensitivity

We propose a new category of consumption goods, memorable goods, that generate a utility flow even after physical consumption. Empirically, memorable goods expenditures exhibit frequent zero monthly purchases and lumpy expenditure spikes. Memorable goods expenditures are 20% the size of nondurable expenditures, but three times as volatile. We then develop a consumption‐savings model with borrowing constraints and income risk that formalizes the notion of memorable goods and distinguishes them from other nondurable goods. We show that consumers optimally choose lumpy consumption of memorable goods. We then measure the welfare cost of consumption fluctuations using our calibrated model and empirically evaluate our calibrated model's predictions for the consumption response to predictable income changes. We find that the welfare cost of household‐level consumption fluctuations induced by income shocks fall from 20.4 to 12.3 percentage points if memorable goods are accounted for, and that empirical estimates of excess sensitivity of consumption may significantly be driven by memorable goods expenditures.

scholarly journals Precautionary Saving and Consumption Fluctuations

2005 ◽  
Vol 95 (4) ◽  
pp. 1119-1143 ◽  
Author(s):  
Jonathan A Parker ◽  
Bruce Preston
Keyword(s):  
The United States ◽  
Precautionary Saving ◽  
Consumption Growth ◽  
Average Growth ◽  
Household Level ◽  
Nondurable Goods ◽  
Consumption Expenditures ◽  
New Information ◽  
Level Data ◽  
Consumption Fluctuations

This paper uses the consumption Euler equation to derive a decomposition of consumption growth into four sources. These four sources are new information, and three sources of predictable consumption growth: intertemporal substitution, changes in the preferences for consumption, and incomplete markets for consumption insurance. Using household-level data, we implement this decomposition for the average growth rate of consumption expenditures on nondurable goods in the United States from 1982 to 1997. The economic importance of precautionary saving rivals that of the real interest rate, but the relative importance of each source of movement in the volatility of consumption is not precisely measured.

scholarly journals The Price of Growth: Consumption Insurance in China 1989–2009

2018 ◽  
Vol 10 (4) ◽  
pp. 1-35 ◽  
Author(s):  
Raül Santaeulàlia-Llopis ◽  
Yu Zheng
Keyword(s):  
Economic Growth ◽  
Growth Process ◽  
Income Shocks ◽  
Income Risk ◽  
Welfare Assessment ◽  
Household Level ◽  
Consumption Insurance ◽  
First Order ◽  
Income Data ◽  
Growing Economy

We exploit a novel and unique opportunity to document the transmission of income risk to consumption in a growing economy. Our laboratory is China, an economy that has witnessed enormous and sustained growth. We build a long panel of household-level consumption and income data. We find that consumption insurance deteriorates along the growth process with a transmission of permanent income shocks to consumption that at least triples from 1989 to 2009. Although preliminary, our welfare analysis suggests that the loss of consumption insurance can have first-order implications for the welfare assessment of economic growth. (JEL D12, E21, O12, O47, P24, P25, P36)

scholarly journals Remittances and Income Smoothing

2011 ◽  
Vol 101 (3) ◽  
pp. 582-587 ◽  
Author(s):  
Catalina Amuedo-Dorantes ◽  
Susan Pozo
Keyword(s):  
Developing Countries ◽  
Household Income ◽  
Borrowing Constraints ◽  
Income Smoothing ◽  
Reverse Causality ◽  
Income Volatility ◽  
Household Level ◽  
Level Data ◽  
Main Motive

Due to inadequate savings and binding borrowing constraints, income volatility can make households in developing countries particularly susceptible to economic hardship. We examine the role of remittances in either alleviating or increasing household income volatility using Mexican household level data over the 2000 through 2008 period. We correct for reverse causality and endogeneity and find that while income smoothing does not appear to be the main motive for sending remittances in a non-negligible share of households, remittances do indeed smooth household income on average. Other variables surrounding income volatility are also considered and evaluated.

The Precautionary Saving Model

2017 ◽  
Author(s):  
Tullio Jappelli ◽  
Luigi Pistaferri
Keyword(s):  
Liquidity Constraints ◽  
Precautionary Saving ◽  
Income Risk ◽  
Quadratic Utility ◽  
Excess Sensitivity

The chapter removes the assumption of quadratic utility and examines situations in which consumers respond to income risk by increasing current saving to protect against future shocks to income. This motive for saving is called precautionary saving, and it provides an explanation for some of the empirical findings in the literature, such as the observation that people with more volatile incomes tend to save more than individuals with more stable income patterns. Moreover, it can also explain the excess sensitivity of consumption to expected income changes. Indeed, a model with precautionary saving produces a good many predictions similar to those of the model with liquidity constraints.

scholarly journals Stunting and Wasting Among Indian Preschoolers have Moderate but Significant Associations with the Vegetarian Status of their Mothers

2020 ◽  
Vol 150 (6) ◽  
pp. 1579-1589 ◽  
Author(s):  
Derek D Headey ◽  
Giordano Palloni
Keyword(s):  
Low Frequency ◽  
Family Health ◽  
National Sample ◽  
Sample Survey ◽  
Household Level ◽  
Child Stunting ◽  
Child Undernutrition ◽  
Dairy Consumption ◽  
Percentage Points ◽  
Self Reports

ABSTRACT Background India has high rates of child undernutrition and widespread lactovegetarianism. Objectives The objective of this study was to examine how nutrition outcomes varied among Indian preschool children in relation to the vegetarian status of their parents. Methods The 2015–2016 National Family Health Survey (NFHS) and the 2011–2012 National Sample Survey (NSS) were used to explore associations between parental vegetarian status and child stunting and wasting at ages 0–59 mo and anemia at ages 6–59 mo. In the NFHS, self-reports on usual consumption of foods were used to classify maternal diets, whereas in the NSS lactovegetarianism was defined at the household level. Results Compared with children of nonvegetarian mothers, children aged 24–59 mo of lactovegetarian mothers were 2.9 percentage points (95% CI: −4.0, −1.9) less likely to be stunted and children aged 6–23 mo were 1.6 points less likely to be wasted (95% CI: −3.0, −0.03), whereas children aged 6–23 mo with vegan mothers were 5.2 points more likely to be stunted (95% CI: 0.1, 9.4). When compared with nonvegetarian households, lactovegetarian households had better socioeconomic status and were more likely to consume dairy frequently. Children in nonvegetarian households consumed nondairy animal-sourced foods (ASFs) with relatively low frequency. The frequency of maternal dairy consumption was significantly associated with lower risks of child stunting and wasting. Conclusions Anthropometric outcomes differed by maternal vegetarian status, which is itself strongly associated with socioeconomic position, location, religion, and caste.

HOW COSTLY ARE BORROWING COSTS? AN ANALYSIS OF ALTERNATIVE FISCAL POLICIES DURING CRISES

2015 ◽  
Vol 21 (5) ◽  
pp. 1141-1157
Author(s):  
Inci Gumus
Keyword(s):  
Borrowing Constraints ◽  
Labor Income ◽  
Fiscal Policies ◽  
Capital Income ◽  
Tax Rate ◽  
Percentage Points ◽  
Tax Reduction ◽  
Labor Tax ◽  
The Government ◽  
Spending Cuts

Financial crises lead to substantial declines in output and consumption in emerging markets. The fact that fiscal policy is procyclical in these countries shows that the effects of a crisis are exacerbated by spending cuts and tax increases, which are usually attributed to borrowing constraints they face in bad times. This paper quantitatively analyzes the costs of reduced borrowing during crises by studying the effects of expansionary fiscal policies that would have been possible to implement, had the government been able to borrow more. The model shows that a 25% reduction of taxes on labor income, capital income, and consumption during the 1997 Korean crisis would have required an additional borrowing of 4.10% of GDP, while increasing output and consumption by 5.23 and 5.92 percentage points, respectively. When the effects of each tax rate are analyzed separately, labor tax reduction turns out to be more effective than the other policies.

scholarly journals Tax Reform and Automatic Stabilization

2002 ◽  
Vol 92 (3) ◽  
pp. 411-433 ◽  
Author(s):  
Thomas J Kniesner ◽  
James P Ziliak
Keyword(s):  
Income Tax ◽  
Panel Study ◽  
Welfare Cost ◽  
Risk Averse ◽  
Income Dynamics ◽  
Income Risk ◽  
Tax Reforms ◽  
Automatic Stabilization ◽  
Consumption Insurance ◽  
Federal Income Tax

An income tax provides implicit insurance by dampening the variability of disposable income and consumption. Using an empirical framework derived from the consumption insurance literature and data from the Panel Study of Income Dynamics we examine the effect of federal income tax reforms of the 1980's on automatic stabilization of consumption. Overall, ERTA and TRA86 reduced consumption stability by about 50 percent. Recently increased EITC generosity restored or enhanced consumption insurance. The welfare cost of moving to the post-TRA86 system is sizable for relatively risk-averse households facing large income risk but is much more modest for the typical household.

Sign in / Sign up

Export Citation Format

Share Document