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Do consumers respond symmetrically to positive and negative income shocks?

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  • Georgarakos, Dimitris

Abstract

Recent research finds that consumers respond more strongly to negative than to positive transitory income shocks, for example, a temporary income tax increase as opposed to a one-off bonus payment. It also suggests that the response can depend on the size of the change in income. These findings lend empirical support to economic models that incorporate liquidity constraints and precautionary saving. JEL Classification: D12, D14, E21

Suggested Citation

  • Georgarakos, Dimitris, 2018. "Do consumers respond symmetrically to positive and negative income shocks?," Research Bulletin, European Central Bank, vol. 44.
    • Handle: RePEc:ecb:ecbrbu:2018:0044:
    Note: 483508
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    References listed on IDEAS

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    1. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer.
    2. Claudia R. Sahm & Matthew D. Shapiro & Joel B. Slemrod, 2015. "Balance-Sheet Households and Fiscal Stimulus: Lessons from the Payroll Tax Cut and Its Expiration," Finance and Economics Discussion Series 2015-37, Board of Governors of the Federal Reserve System (U.S.).
    3. Kanishka Misra & Paolo Surico, 2014. "Consumption, Income Changes, and Heterogeneity: Evidence from Two Fiscal Stimulus Programs," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 84-106, October.
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    Cited by:

    1. Dimitrios Sideris & Georgia Pavlou, 2021. "Disaggregate income and wealth effects on private consumption in Greece," Working Papers 293, Bank of Greece.

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    More about this item

    Keywords

    Marginal Propensity to Consume.; Positive and Negative Income Shocks; Transitory Income Shocks;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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