On the Fungibility of Spending and Earnings : Evidence from Rural China and Tanzania

A common behavioral assumption of micro-economic theory is that income is fungible. Using household panel data from rural China and Tanzania, this study finds however that people are more likely to spend unearned income on less basic consumption go...

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Bibliographic Details
Main Authors:	Christiaensen, Luc, Pan, Lei
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ACCOUNTING AGRICULTURAL COMMODITIES AGRICULTURE AID EFFECTIVENESS ATTRITION AVERAGE INCOME BARGAINING BORROWING BUDGET CONSTRAINTS CASH TRANSFERS CONSUMER CHOICE CONSUMERS CONSUMPTION BEHAVIOR CONSUMPTION FUNCTION CONSUMPTION SMOOTHING COPING BEHAVIORS COUPONS CRISES CROP INCOME CROSS-SECTION DATA DEBT DECISION MAKING DEPENDENT VARIABLE DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DROUGHT EARNED INCOME EARNINGS ECONOMIC CONDITIONS ECONOMIC DEVELOPMENT ECONOMIC REVIEW ECONOMIC SHOCKS ECONOMIC THEORY EMPIRICAL APPLICATION EMPIRICAL FINDINGS EMPLOYMENT EMPLOYMENT GUARANTEE SCHEMES EXPLANATORY POWER FARM ACTIVITIES FARM INCOME FEMALE LABOR FINANCIAL SECTOR FOOD CONSUMPTION FOOD EXPENDITURES FUNGIBILITY GAME THEORY GIFT GIVING HOUSEHOLD BUDGET HOUSEHOLD CONSUMPTION HOUSEHOLD HEAD HOUSEHOLD HEAD AGE HOUSEHOLD INCOME HOUSEHOLD MEMBERS HOUSEHOLD SIZE HOUSEHOLD VULNERABILITY INCOME INCOME DATA INCOME GAINS INCOME GROUPS INCOME LEVELS INCOME SHARE INCOME SOURCE INCOME SOURCES INCOME TRANSFERS INCOMES INSURANCE LABOUR LIQUIDITY LOW INCOME MARGINAL PROPENSITY TO CONSUME MEASUREMENT ERROR NONFARM INCOME NUTRITION OPTIMIZATION PERMANENT INCOME PERMANENT INCOME HYPOTHESIS POLICY DISCUSSIONS POLICY IMPLICATIONS POLICY INTERVENTIONS POLICY RESEARCH POLITICAL ECONOMY POOR POST KEYNESIAN ECONOMICS POVERTY ANALYSIS POVERTY REDUCTION POVERTY REDUCTION PROJECT PUBLIC ECONOMICS PUBLIC POLICY RECIPROCITY REGRESSION TECHNIQUES RELATIVE PRICES RESOURCE ALLOCATION RURAL RURAL HOUSEHOLDS RURAL INFRASTRUCTURE RURAL SETTINGS SAFETY NETS SAVINGS SCHOOL FEEDING SIGNIFICANCE LEVEL SOCIAL SAFETY SOCIAL SAFETY NETS SOCIAL SECURITY SOCIAL SECURITY PROGRAMS TARGETING TAXATION UTILITY FUNCTION WEALTH
Online Access:	http://documents.worldbank.org/curated/en/2012/12/17123932/fungibility-spending-earnings-evidence-rural-china-tanzania http://hdl.handle.net/10986/12208

Description
Summary:	A common behavioral assumption of micro-economic theory is that income is fungible. Using household panel data from rural China and Tanzania, this study finds however that people are more likely to spend unearned income on less basic consumption goods such as alcohol and tobacco, non-staple food, transportation and communication, and clothing, while they are somewhat more likely to spend earned income on basic consumption goods such as staple food, and invest it in education. This resonates with the widespread cultural notion that money that is easily earned is also more easily spent. Cognitively, the results could be understood within the context of emotional accounting, whereby people classify income based on the emotions it evokes, prompting them to spend hard earned money more wisely to mitigate the negative connotations associated with its acquisition. The policy implications are real, bearing for example on the choice between employment guarantee schemes and cash transfers in designing social security programs.

On the Fungibility of Spending and Earnings : Evidence from Rural China and Tanzania

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