Consumption and Debt Response to Unanticipated Income Shocks: Evidence from a Natural Experiment in Singapore

OMI Seminar Series

This paper uses a unique panel data set of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock. We find that consumption rose significantly subsequent to the fiscal policy announcement: for each dollar received, consumers on average spent 90 cents during the ten months after the program’s announcement. There was a moderate decrease in debt. We find a strong announcement effect — consumers increased spending via their credit cards during the two-month announcement period, but they switched to debit cards after disbursement, before finally increasing spending on the credit card in the later months.


Sumit Agarwal (NU Singapore)

Tuesday, November 5, 2013 - 12:30
to 13:30