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The present study investigates how households' social comparisons of their economic situation affect purchase decisions. In structured telephone interviews, participants (n = 109) answered questions about purchases of durable good...
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The present study investigates how households' social comparisons of their economic situation affect purchase decisions. In structured telephone interviews, participants (n = 109) answered questions about purchases of durable goods and groceries. In line with the hypothesis, social comparisons had an effect on purchase decisions of durable goods when controlling for actual economic situation. Households that considered themselves to be worse off economically than others reported fewer purchases of durable goods, perceived the impact on their economy of their latest purchase to be greater, and planned purchases more carefully than did households that considered themselves better off economically than others. Also in line with the hypothesis, for purchases of groceries, households' actual economic situation was more important than social comparisons.
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While paying careful attention to the stochastic properties of income process, this paper tests the joint rational expectation and permanent income hypothesis (RE/P1H) to clarify how and to what degree financial integration delink...
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While paying careful attention to the stochastic properties of income process, this paper tests the joint rational expectation and permanent income hypothesis (RE/P1H) to clarify how and to what degree financial integration delinks national income and consumption. It is shown that both the OECD and the non-OECD countries benefit from financial integration in terms of consumption risk sharing and smoothing. The RE/PIH for the transitory income is not rejected for the OECD countries suggesting full consumption smoothing. Regression results also support the RE/PIH prediction that financial integration delivers even larger increases in consumption responding to positive shocks to income growth.
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This paper improves our understanding of the relation between income risk and consumption risk. It challenges the view that increasing bankruptcy rates, which could be interpreted as increasing transfers to "unlucky" households, a...
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This paper improves our understanding of the relation between income risk and consumption risk. It challenges the view that increasing bankruptcy rates, which could be interpreted as increasing transfers to "unlucky" households, are an important mechanism shielding consumption risk from the higher income risk experienced by US households over the last 30 years. The paper shows that higher use of unsecured credit and bankruptcy, enabled by better information in credit markets, does not prevent higher income risk from translating almost one to one into consumption risk. This result
suggests that there are three (non-mutually exclusive) possible explanations for the finding, discussed in the first section of this comment, that consumption risk has increased only modestly despite a substantial increase in income risk.
The first is that the increase in income risk is of predictable or transitory nature so it does not affect permanent income and consumption risk (regardless of bankruptcy). The second is that households have access to financial markets which allow them to insure against fluctuations in their permanent income. The third is that the use of unsecured credit and bankruptcy have increased for reasons different than better information (for example lower intermediation costs), and these reasons also allow households to use unsecured credit and bankruptcy as a more effective shields against higher income risk. An interesting avenue of future research would be to evaluate more precisely the scope of these three explanations.
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Increasing remittance flows to developing countries continue to stimulate analytical research. We apply a model, based on the "permanent income hypothesis", to estimate the impact of remittances on consumption in eleven Latin Amer...
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Increasing remittance flows to developing countries continue to stimulate analytical research. We apply a model, based on the "permanent income hypothesis", to estimate the impact of remittances on consumption in eleven Latin American and Caribbean countries for the period of 2003-2013. The independent variables are: (a) real per capita national income (exclusive of remittances), the measure of "permanent income", (b) remittances, the measure of "transitory income", and (c) real interest rate, the indicator of intertemporal consumption substitution. The coefficient of remittances measures the consumption-augmentation and saving effects, while the correlation between remittances and per capita income indicates the consumption-smoothing effects. The results, based on the panel data methodology, indicate: (a) both permanent income and transitory income positively impact consumption, (b) consumption responds higher to permanent income than to transitory income, (c) transitory income has augmenting, stabilizing and countercyclical effects on consumption, and (d) the significant interest rate indicates the ability of recipients to make intertemporal consumption substitution. Evidence of significant "country effect" attests to heterogeneity among countries. Strategies to stabilize remittance flows and to leverage them for financial, economic and social development should be important policy considerations.
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We develop an estimator of unreported income that relies on more flexible identifying assumptions than those that have been used previously. Assuming only that evaders have a higher consumption-income gap than non-evaders in surve...
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We develop an estimator of unreported income that relies on more flexible identifying assumptions than those that have been used previously. Assuming only that evaders have a higher consumption-income gap than non-evaders in surveys, our model enables the estimation of both the probability of hiding income and the amount of unreported income for each household. We illustrate the method using Czech and Slovak household budget surveys. Our results are robust to alternative specifications. Furthermore, we show that since the underreported share decreases with reported income, income inequality in these countries may be lower than suggested by the reported income.
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This article computes the degree of consumption insurance with respect to transitory and permanent income shocks. The lack of income-consumption data in the US surveys forces researchers to use an empirical strategy to impute cons...
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This article computes the degree of consumption insurance with respect to transitory and permanent income shocks. The lack of income-consumption data in the US surveys forces researchers to use an empirical strategy to impute consumption. This procedure is avoided by using the Spanish Household Budget Continuous Survey, which contains true panel data on consumption and income information in the same survey. We find full insurance for transitory income shocks and partial insurance for permanent shocks for some sub-groups. For the full sample, a 10% permanent income shock induces a 4.8% permanent change in consumption, with higher insurance capacity for college, home-owner and high-wealth households. We also compute the role of durables and family income transfers as smoothing devices. The comparison of insurance level when based on true consumption data versus imputed consumption data shows that the use of imputed consumption underestimates permanent insurance.
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Abstract We investigate whether the debt position of UK households affects the response of nondurable consumption to income and wealth changes. We construct a novel estimate of nondurable consumption to track the same individual h...
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Abstract We investigate whether the debt position of UK households affects the response of nondurable consumption to income and wealth changes. We construct a novel estimate of nondurable consumption to track the same individual households over time for an extended period ranging from 1993 to 2017. Using this series, we explore how household indebtedness propagates negative and positive income and wealth changes to consumption responses. We assess whether negative and positive shocks imply the same consumption adjustments and whether such mechanism is crisis specific. Our evidence reveals that falls in income trigger substantially larger adjustments in consumption than income rises for households with debt, while the findings for wealth are less conclusive. The results also point to a macro‐financial link between a debt overhang and consumer spending, which carries implications for macro‐prudential policy makers aiming to ensure household resilience. These effects are not specific to the financial crisis period.
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This paper explores whether energy conservation policies can be implemented in countries with the same level of development. That is, is restraining energy consumption without compromising economic growth feasible in all industria...
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This paper explores whether energy conservation policies can be implemented in countries with the same level of development. That is, is restraining energy consumption without compromising economic growth feasible in all industrialized countries? A new Granger non-causality testing procedure developed by Toda and Yamamoto [1995, Journal of Econometrics 66, 225-250] is applied to re-investigate the relationship, if any, between energy consumption and income in 11 major industrialized countries. The results clearly do not support the view that energy consumption and income are neutral with respect to each other, except in the case of the United Kingdom, Germany and Sweden where a neutral relationship is found. Bi-directional causality in the United States and unidirectional running from energy consumption to GDP in Canada, Belgium, the Netherlands and Switzerland are found. This indicates that energy conservation may hinder economic growth in the latter five countries. Further, the causality relationship appears to be uni-directional but reversed for France, Italy and Japan which implies that, in these three countries, energy conservation may be viable without being detrimental to economic growth.
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In 1960, Working noted that time aggregation of a random walk induces serial correlation in the first difference that is not present in the original series. This important contribution has been overlooked in a recent literature an...
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In 1960, Working noted that time aggregation of a random walk induces serial correlation in the first difference that is not present in the original series. This important contribution has been overlooked in a recent literature analyzing income and consumption in panel data. I examine Blundell et al., (2008) as an important example for which time aggregation has quantitatively large effects. Using new techniques to correct for the problem, I find the estimate for the partial insurance to transitory shocks, originally estimated to be 0.05, increases to 0.24. This larger estimate resolves the dissonance between the low partial consumption insurance estimates of Blundell et al., (2008) and the high marginal propensities to consume found in the natural experiment literature. A remaining puzzle is the low estimate I recover for the partial insurance to permanent shocks. Published by Elsevier B.V.
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A method to impute consumption expenditure inequality between wealth groups in the Survey of Consumer Finances is provided, allowing for measurement error that is correlated with income and wealth. Identification is derived from o...
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A method to impute consumption expenditure inequality between wealth groups in the Survey of Consumer Finances is provided, allowing for measurement error that is correlated with income and wealth. Identification is derived from observing food at home and away, which are relative necessities and luxuries, respectively. The gap in expenditure between top and bottom wealth quintiles increased by 50% between 2004 and 2013, indicating that increases in wealth inequality have passed through to consumption. (C) 2020 Elsevier B.V. All rights reserved.
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