Revisiting the Response of Household Spending to the Alaska Permanent Fund Dividend Using CE Data

Abstract

This paper revisits the important contribution of Hsieh (2003) to the analysis of the intertemporal allocation of household consumption. Using total expenditures to normalize income from the Alaska Permanent Fund Dividend instead of family income and an extended sample of the Consumer Expenditure Survey (CE), I show that log household spending on nondurables is excessively sensitive to the arrival of this predetermined cash flow, with a statistically significant elasticity between 11% and 16%. The previously estimated non-response can largely be attributed to attenuation bias introduced by substantial measurement error in self-reported before-tax family income, in particular over-reporting of very small values.