Abstract
I study a consumption-saving model in which consumers neglect the opportunity costs and experience a pain of paying that is decreasing and convex in the budget. The spending response to a transitory income shock can be sizable, even for liquid consumers. It is stronger for consumers with a smaller budget and for smaller income shocks. The estimated model yields predictions that are quantitatively close to the spending responses of Norwegian lottery winners (Fagereng et al., 2021). I also explore the implications of the model for asymmetric consumption smoothing, dynamic spending responses, and the age profiles of consumption and wealth.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
