The consumption response to seasonal income: Evidence from Japanese public pension benefits

  • Stephens M
  • Unayama T
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Japanese public pension benefits, which were distributed quarterly
through February 1990, and every other month since then, induce
substantial but predictable income fluctuations. The relative magnitude
of the payments combined with the delay between payments yields a
stronger test of the Life-Cycle/Permanent Income Hypothesis than in
prior studies. Applying two identification strategies to monthly
household panel data, we find that consumption significantly responds to
quarterly benefit receipt. Additional analysis suggests that our
findings cannot be explained by either liquidity constraints or
precautionary savings motives.

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