DP12025 Asymmetric Consumption Effects of Transitory Income Shocks
We use the responses of a representative sample of Dutch households to survey questions that ask
how much they would consume of an unexpected, transitory, and positive income change, and by
how much they would reduce their consumption in response to an unexpected, transitory, and
negative income change. The questionnaire distinguishes between relatively small income changes
(a one-month increase or drop in income), and relatively larger ones (equal to three months of
income). The results are broadly in line with models of intertemporal choice with precautionary
saving, borrowing constraints, and finite horizons.