Anticipated Price Increase and Consumption Dynamics: Evidence From Japan

ABSTRACT When prices are expected to rise, consumers are incentivized to engage in intertemporal substitution. This effect tends to be larger for longer‐term storable goods, because consumers stockpile these goods for future consumption. Using Japan's consumption tax hike in 2014, I examine consumers' purchasing behavior and find the following. First, price‐sensitive consumers significantly increased purchases of storable goods before the tax hike, but not purchases of less storable goods. Second, consumers frequently buying lower‐quality goods increased purchases of storable goods, while reducing purchases of less storable goods. These purchasing patterns suggest that some consumers faced liquidity constraints and prioritized purchases of long‐term storable goods over short‐term storable goods. By characterizing a discontinuity in consumers' purchasing patterns, I estimate the proportion of liquidity constrained consumers.