Once or Twice a Month? The Impact of Payment Frequency on Spending Behavior
Laamanen, Jani-Petri; Matikka, Tuomas; Paukkeri, Tuuli (2022-09-23)
Valtion taloudellinen tutkimuskeskus
We study how the frequency of income payments affects consumption and spending behavior using plausibly exogenous variation across Finnish pension benefit recipients with different surname initials. We find that twice-a-month payments remove the large consumption and spending hikes widely documented to be associated with monthly payments. Compared to those paid twice, those paid once a month end up spending more monthly instead of cutting back on spending late in the month. Consequently, once-a-month payments lead to saving less (or borrowing more), even if the significant extra spending on expensive durable goods is considered as saving.
Social security, taxation and income distribution
D12, D14, D15, H55, I38
consumption, spending, consumption smoothing, household finance, time preference, payment frequency, social security, pensions
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