Gender Differences in Reactions to Income Shocks

Do women respond differently to income shocks than men? We use questions from the NY Fed Survey of Consumer Expectations that ask which margins women and men would adjust to an unexpected 10% change in income. Women are more likely to repay debt after an unexpected increase in income, where men increase spending and saving. When asked about how to buffer a decrease in income, both men and women report large reductions in spending, but women reduce spending more. Differences in the marginal propensity to adjust debt are related to gender differences in debt-to- income, the degree of discouraged borrowing, and liquidity constraints, where women are more likely to be constrained along all three dimensions. Together these three variables explain about 40% of the gender differences in the marginal propensity to repay debt, and 75% of the differences in the marginal propensity to borrow. A simple model with occasionally binding borrowing constraints can rationalize the gender differences in the marginal propensities to consume and adjust debt.