Home maintenance expenditures and income fluctuations

Abstract

In this paper, I study the role of a household’s expenditures on durables in its smoothing strategy for consumption. I ask, “Do homeowners spend less on maintaining their homes when they earn less than expected?” To answer this question, I estimate the elasticity of home maintenance expenditures to transitory earnings. The results show that households do smooth consumption by reducing home maintenance expenditures when transitory earnings are negative, but do not do so by spending more when transitory earnings are positive. Households that are mobility constrained do use home maintenance expenditures as a smoothing strategy, but those that are not constrained do not. The results also show an asymmetry by gender: Males reduce maintenance expenditures for negative transitory earnings while females increase these expenditures for positive transitory earnings.