Work

The impact of unexpected delays in periodic payments on consumption

Year: 2025

Type: article

Abstract: We study how unexpected delays in periodic payments affect spending behavior. Our empirical approach uses transaction-level data on income and spending and exploits quasi-random delays in the receipt of unemployment insurance (UI) benefits. Spending drops by about half of the loss in income that occurs while individuals wait for UI benefits, revealing the value of periodic payments for liquidity-constrained individuals. Once delayed payments are received as lump sums, individuals reallocate spending toward less commonly purchased big-ticket categories that are dominated by durables. • We study how unexpected delays in periodic payments affect spending behavior. • UI benefits were delayed for many people during the COVID-19 pandemic. • Spending drops by about half of the loss in income when people wait for UI. • Spending shifts towards durables when delayed UI benefits are received as lump sums. • Our findings inform the discussion on the optimal frequency of benefit transfers.

Source: Journal of Public Economics

DOI: 10.1016/j.jpubeco.2025.105523

Authors: Michael Gelman, Zachary Orlando, Dhiren Patki

Institutions: Claremont McKenna College, University of Wisconsin–Madison, Federal Reserve Bank of Boston

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: No poverty

Open Access status: hybrid

Estimated APC paid: $4,510