American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Consumption and Debt Response to Unanticipated Income Shocks: Evidence from a Natural Experiment in Singapore
American Economic Review
vol. 104,
no. 12, December 2014
(pp. 4205–30)
Abstract
This paper uses a unique panel dataset of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock. Consumption rose significantly after the fiscal policy announcement: during the ten subsequent months, for each $1 received, consumers on average spent $0.80. We find a strong announcement effect -- 19 percent of the response occurs during the first two-month announcement period via credit cards. Subsequently, consumers switched to debit cards after disbursement before finally increasing spending on credit cards in the later months. Consumers with low liquid assets or with low credit card limit experienced stronger consumption responses. (JEL D12, D14, E21)Citation
Agarwal, Sumit, and Wenlan Qian. 2014. "Consumption and Debt Response to Unanticipated Income Shocks: Evidence from a Natural Experiment in Singapore." American Economic Review, 104 (12): 4205–30. DOI: 10.1257/aer.104.12.4205Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D14 Household Saving; Personal Finance
- E21 Macroeconomics: Consumption; Saving; Wealth