Centre for Development Economics


Institute of Economic Growth


 Consumption and Income Dynamics of the Rural Poor: Evidence for Behavioral Consumption Theories using High-Frequency Household-Level Income-Diary Data in Rural Uganda


David Just (Cornell University, New York)

Thursday, 12 November 2020 at 6:30 PM IST

 Consumption and savings play a key role in the prevalence of chronic poverty. Yet the dynamics of consumption/savings with respect to income have been rarely explored due to a paucity of high-frequency data on a sufficient sample of households. We present a unique dataset and consider alternative behavioral models of consumption based on a unique dataset of weekly observations across 24 weeks on income, consumption, and savings from 480 coffee-producing households in eastern Uganda. We outline an econometric model which nests a range of behavioral phenomena including the rational expectations model associated with the Permanent Income Hypothesis/Life Cycle model. Considerations of behavioral phenomena are included via inclusion of factors identified from widely-used psychological indices incorporating elements measuring self-control. Results strongly support a rule-of-thumb consumption pattern and asymmetrically sticky consumption patterns indicating that households in our sample behave myopically and seek to maintain a potentially harmfully high level of consumption when possible (in terms of diminishing potential savings).

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