
Consumption spillovers are difficult to estimate. Many tests in the literature argue that spillovers cause positive correlations between individual consumption levels and aggregate income quantiles. This paper develops simulation-based procedures for evaluating reduced-form tests for consumption spillovers. I find that the correlation found in prior tests may be spurious, arising from the mechanical relationship between a household's income in a given period and a quantile of the income distribution in that period. This paper also explores the mechanical correlation's determinants and proposes strategies for estimating unbiased consumption spillover effects.
Page Count:
97
Publication Date:
2021-01-01
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