Huntley, Jonathan; Michelangeli, Valentina - In: American Economic Journal: Macroeconomics 6 (2014) 1, pp. 162-89
We build a life-cycle model with earnings risk, liquidity constraints, and portfolio choice over tax-deferred and taxable assets to evaluate how household consumption changes in response to shocks to transitory anticipated income, such as the 2001 income tax rebate. Households optimally invest...