'3rd of tha Month': Do Social Security Recipients Smooth Consumption Between Checks?

摘要

This paper examines the response of consumption to the monthly arrival of Social Secu- rity checks which are a frequent, constant normal income stream. The basic life-cycle/permanent income hypothesis predicts that consumption should not respond to the receipt of a Social Security check. Using diary data from the Consumer Expenditure Survey, this paper finds evidence that both the dollar amount and probability of making any expenditures increase immediately following the receipt of this check. Most relevant to testing the LCPIH, categories of instantaneous consumption expenditure such as food away from home increase on the check arrival date. Examination of daily expenditure data reveals that the increase is sharpest on the day of check arrival and is concentrated amongst households for whom Social Security is the primary source of income. Although the results found in this paper are inconsistent with the complete smoothing of consumption between Social Security checks, they are not necessarily evidence of large utility losses due to these violations of the basic LCPIH. At the individual level, John H. Cochrane (1989) shows that deviations from the household's optimal consumption plan under the LCPIH may only have second-order effects in terms of lost utility. In light of these results, choosing to dine out after receiving one's monthly Social Security check may have small implications for individual welfare. At the aggregate level, the intramonth shifting of expenditures likely has smaller effects on the macroeconomy than, say, the shifting of expenditures across months due to the timing of income tax refunds. The results presented here point towards areas for further research. The findings suggest that expanding the literature on testing the LCPIH to considering frequently distributed forms of normal income such as paychecks as well as other government transfer programs may prove useful in understanding the heterogeneity across households in the consumption response to nonnal income receipt. Another avenue for research is to expand the aforementioned work of Warner and Barsky and Chevalier et al. to explore the degree of monthly price variability. Store-level data on price changes, especially in areas where large portions of the population are simultaneously receiving transfer payments, may provide further evidence on the behavior of retailers in periods of peak demand.