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MIT Executive MBA

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Asymmetric Consumption Smoothing

From Brian Baugh, Itzhak Ben-David, Hoonsuk Park and Jonathan Parker

Analyzing account-level data from an account aggregator, we find that households increase consumption when they receive expected tax refunds, as if they face liquidity constraints. However, these same households smooth consumption when making payments in other years, primarily by transferring funds among liquid accounts. Even households carrying credit card debt smooth consumption when making payments, and even highly liquid households spend out of refunds. This behavior is inconsistent with pure liquidity constraints or hand-to-mouth behavior and is most consistent with a mental accounting life-cycle model.

Featured Publication

"Asymmetric Consumption Smoothing."

Baugh, Brian, Itzhak Ben-David, Hoonsuk Park, and Jonathan A. Parker. American Economic Review Vol. 111, No. 1 (2021): 192–230. Publisher Page.

Learn More about Savings Markets

Current Savings Markets projects from the Consumer Finance Initiative cover topics including investment portfolio decisions, household consumption and financial disclosure. Find more Savings Market research here.