I thank Kerwin Charles, Jeff Dominitz and Lowell Taylor for useful comments. Data from the Family Expenditure Survey is Crown Copyright, made available by the CSO through the ESRC Data Archive, and used by permission.
Paycheque Receipt and the Timing of Consumption†
Article first published online: 11 JUL 2006
The Economic Journal
Volume 116, Issue 513, pages 680–701, July 2006
How to Cite
Stephens, M. (2006), Paycheque Receipt and the Timing of Consumption. The Economic Journal, 116: 680–701. doi: 10.1111/j.1468-0297.2006.01106.x
- Issue published online: 11 JUL 2006
- Article first published online: 11 JUL 2006
- Submitted: 18 February 2003 Accepted: 6 April 2005
This article examines the consumption response to monthly paycheque receipt. Since the amount and arrival date of paycheques are known in advance, the receipt of a paycheque does not coincide with the receipt of new information. Under the basic rational expectations Life-Cycle/Permanent Income Hypothesis, household consumption should not respond to paycheque arrival. Using data from the UK's Family Expenditure Survey, this article finds that household consumption is excessively sensitive to paycheque receipt. The results cannot be explained by any underlying monthly expenditure fluctuations common to all households. The presence of liquidity constraints as measured by wealth and age can account for the excess sensitivity results.