Mel Stephens 2008-10-16
From OBTnotes
Can Governments Help Households Smooth Consumption?
Evidence from Japanese Public Pension Benefits
- from CMU Heinz
Abstract
Recent research finds that households do not "smooth" consumption between regular income receipts such as paychecks and government transfers. We examine whether the consumption response to such income payments is affected by the frequency at which these checks are delivered. We find that the consumption of Japanese households is sensitive to public pension benefit check receipt when these checks are distributed quarterly but that households smooth consumption once the payment frequency is shortened to a bi-monthly interval. Although contrary to the predictions of the Life-Cycle/Permanent Income Hypothesis, our results are consistent with a mental accounting model of self-control.