The Impact of the 2008 Recession on Intra-Monthly Consumption: Clean Evidence of Time Inconsistency.

Francesco Manaresi
University of Bologna, Italy

Using daily expenditure data from a large panel of Italian households, this paper studies the effect of the 2008/09 crisis on the intra-monthly pattern of consumption for households receiving a monthly wage or pension. Since each household is observed both pre- and during the recession, I perform a difference-in-differences analysis to evaluate the impact of the crisis on intertemporal smoothing. Results show that households with access to credit markets were able to smooth their consumption between paydays, while liquidity constrained households that were negatively hit by the crisis experienced a significant drop in their food consumption pattern from the fourth week after the income receipt. The findings for liquidity constrained households are not consistent with the standard PIH, but can be explained by self-control problems (as modelled with hyperbolic discounting). Results are robust to several definitions of liquidity constraints.

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