I sometimes find myself having some perplexing economic behavior. For one case, whenever I am faced with a choice of saving if I get one-time extra money, I don't. And that's the perplexing part: I spent all of it. It's like, whenever I get that one-time extra money, some crazy voice begins talking in my head saying, "Well, if you're going to spend it eventually, why not spend it now and be done with it."
Well, it looks like it's not such a strange economic behavior at all. In their latest NBER working paper entitled "Check in the Mail or More in the Paycheck: Does the Effectiveness of Fiscal Stimulus Depend on How It Is Delivered?," Claudia R. Sahm, Matthew D. Shapiro, and Joel Slemrod try to quantify the spending response to two different policies (2009 economic stimulus package delivered either as a one-time payment or as a flow of payments in the form of reduced withholding) and examines whether the spending response differed according to the two channels. According to their paper, people who are receiving the stimulus package one-time are more likely to increase spending than those receiving the stimulus package in flows (and quite discretely I might say):
"Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding led to a substantially lower rate of spending than the one-time payments. Specifically, 25 percent of households reported that the one-time economic stimulus payment in 2008 led them to mostly increase their spending while only 13 percent reported that the extra pay from the lower withholding in 2009 led them to mostly increase their spending."
Maybe it's just the notion that, if you fully realize you're getting extra money, it's kind of a jolt in your daily routine and so as a response, you also somewhat change your economic behavior. But if it were the case that such extra money were given to you a little bit discretely, such as through a reduction in your tax, you might not feel that difference and so still think that things are normal. As such, there's no need to change your spending habit.
Such economic behavior is perplexing because instead of being prudential and save money for a "rainy day," a person would spend income that will only come for one time. But for people expecing to receive such income in subsequent flows, they're the ones spending less. I mean, if you know you're still going to receive money, why not increase you spending? And for a person who won't be expecting anymore extra money, why not save it?
Like I say, maybe it's the notion of why linger on: let's spend it and be done with it.