Work

How Individuals Smooth Spending: Evidence from the 2013 Government Shutdown Using Account Data

Year: 2013

Type: preprint

Abstract: Using comprehensive account records, this paper examines how individuals adjusted spending and saving in response to a temporary drop in income due to the 2013 U.S. government shutdown. The shutdown cut paychecks by 40 % for affected employees, which was recovered within 2 weeks. Though the shock was short-lived and completely reversed, spending dropped sharply implying a näıve estimate of the marginal propensity to spend of 0.58. This estimate overstates how consumption responded. While many individuals had low liquidity, they used multiple strategies to smooth consumption including delay of recurring payments such as mortgages and credit card balances. ∗We thank Kyle Herkenhoff, Patrick Kline, Dimitriy Masterov, Melvin Stephens Jr., and Jeffrey Smith as well as participants at many seminars for helpful comments. This research is supported by a grant from the Alfred P. Sloan Foundation. Shapiro acknowledges additional support from the Michigan node of the NSF-Census Research Network (NSF SES 1131500).

Source: SSRN Electronic Journal

Authors: Michael Gelman, Shachar Kariv, Matthew D. Shapiro, Dan Silverman, Steven Tadelis

Institutions: University of Michigan, University of California, Berkeley, Arizona State University

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: No poverty

Open Access status: green

OpenAlex ID: W1579791237

Cites: 23

Cited by: 18

Related to: 10