American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Mental Accounts and Consumption Sensitivity across the Distribution of Liquid Assets
American Economic Journal: Macroeconomics
(pp. 1–33)
Abstract
We study consumption spending responses to predictable income using household-level data from a US 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.Citation
Graham, James, and Robert A. McDowall. 2026. "Mental Accounts and Consumption Sensitivity across the Distribution of Liquid Assets." American Economic Journal: Macroeconomics 18 (1): 1–33. DOI: 10.1257/mac.20220200Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- E21 Macroeconomics: Consumption; Saving; Wealth
- E62 Fiscal Policy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth