Economics research seminar: James Graham, University of Sydney

Research topic: Mental Accounts and Consumption Sensitivity Across the Distribution of Liquid Assets  

James Graham, University of Sydney 

Topic

Mental Accounts and Consumption Sensitivity Across the Distribution of Liquid Assets  

abstract

We study consumption spending responses to predictable income using household-level data from a U.S. financial institution. Even for households with large liquid asset balances, we find no spending in anticipation of income receipt, substantial spending following receipt, and significant front-loading with respect to date of receipt. To rationalize these findings, we develop a tractable model of mental accounts where consumption choices are partitioned across current income and current assets. Our model reproduces the timing, magnitude, and cross-section of consumption responses observed in the data. Finally, we use the model to study the effectiveness of targeted and untargeted fiscal stimulus policies. 

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