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We study consumption spending responses to predictable income
using household-level data from a U.S. financial institution. Even
for households with large liquid asset balances, we find no spending
in anticipation of income receipt, substantial spending following receipt,
and significant front-loading with respect to date of receipt.
To rationalize these findings, we develop a tractable model of mental
accounts where consumption choices are partitioned across current
income and current assets. Our model reproduces the timing,
magnitude, and cross-section of consumption responses observed
in the data. Finally, we use the model to study the effectiveness of
targeted and untargeted fiscal stimulus policies.
