Consumer Spending During Unemployment: Positive and Normative Implications / Peter Ganong, Pascal J. Noel.

Format:

Book

Author/Creator:

Ganong, Peter.

Contributor:

National Bureau of Economic Research.

Noel, Pascal J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25417.

NBER working paper series no. w25417

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Consumer Spending During Unemployment

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

Using de-identified bank account data, we show that spending drops sharply at the large and predictable decrease in income arising from the exhaustion of unemployment insurance (UI) benefits. We use the high-frequency response to a predictable income decline as a new test to distinguish between alternative consumption models. The sensitivity of spending to income we document is inconsistent with rational models of liquidity-constrained households, but is consistent with behavioral models with present-biased or myopic households. Depressed spending after exhaustion also implies that the consumption-smoothing gains from extending UI benefits are four times larger than from raising UI benefit levels.

Notes:

Print version record

January 2019.