Income Shocks, Consumption, Wealth, and Human Capital: Evidence from Russia

Abstract

Using the Russia Longitudinal Monitoring Survey, this article investigates how Russian households’ consumption responds to income shocks and, in particular, how household wealth and human capital affect the households’ ability to smooth consumption. An instrumental variable estimation method with household fixed effects is implemented. After correcting for potential problems of sample attrition using the inverse probability weighting method, the article finds that household consumption in Russia is only partially protected from idiosyncratic shocks. The analysis also provides evidence that wealthier households can better smooth their consumption. Furthermore, changes in income have less impact on consumption when households have members with higher education levels. Wealth effects are more pronounced in rural areas, while education effects are stronger for urban households.