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Using Home Maintenance and Repairs to Smooth Variable Earnings

Working paper #432
Joseph Gyourko and Joseph Tracy

Recent research indicates that the significant increase in U.S. income inequality experienced has not been matched by an similar increase in consumption inequality. This paper reexamines the role of saving/dissaving in a house as a vehicle for this successful consumption smoothing. American Housing Survey data shows that these expenditures are economically significant, amounting to around $1,750. This compares to estimates from the labor literature reporting average annual transitory income variance of about $2,200. We find a significant elasticity of maintenance/repair expenditures to transitory income shocks, and larger elasticities for less well-educated households who are more likely to be liquidity constrained.

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