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The effects of temporary income shocks on household expenditure: the case of Ecuador

The effects of temporary income shocks on household expenditure: the case of Ecuador I study how household expenditures on non-durable consumption and human capital change in response to a positive and temporary income shock. I examine a sample of single-income earning Ecuadorian households where the income earner participated in a procurement process that uses a random lottery to select winning bidders for public tenders. I use a unique dataset that combines the results from the lottery with confidential tax-level data. I find that income shocks cause households to increase spending in education and health by 8% and in food and clothing by 11% during the year of the shock. I also find that households that received shocks of higher magnitudes smooth their expenditures over time. In addition to providing a measure of the propensity to consume for households in Ecuador, this study contributes to the literature by focusing on an unexpected, positive and temporary income shock. Additionally, this study estimates the joint effects on non-durable consumption and human capital, areas which have traditionally been studied separately. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Sustainable Economy Inderscience Publishers

The effects of temporary income shocks on household expenditure: the case of Ecuador

International Journal of Sustainable Economy , Volume 11 (3): 17 – Jan 1, 2019

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Publisher
Inderscience Publishers
Copyright
Copyright © Inderscience Enterprises Ltd
ISSN
1756-5804
eISSN
1756-5812
DOI
10.1504/IJSE.2019.100681
Publisher site
See Article on Publisher Site

Abstract

I study how household expenditures on non-durable consumption and human capital change in response to a positive and temporary income shock. I examine a sample of single-income earning Ecuadorian households where the income earner participated in a procurement process that uses a random lottery to select winning bidders for public tenders. I use a unique dataset that combines the results from the lottery with confidential tax-level data. I find that income shocks cause households to increase spending in education and health by 8% and in food and clothing by 11% during the year of the shock. I also find that households that received shocks of higher magnitudes smooth their expenditures over time. In addition to providing a measure of the propensity to consume for households in Ecuador, this study contributes to the literature by focusing on an unexpected, positive and temporary income shock. Additionally, this study estimates the joint effects on non-durable consumption and human capital, areas which have traditionally been studied separately.

Journal

International Journal of Sustainable EconomyInderscience Publishers

Published: Jan 1, 2019

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