Effects of Changes in Income on Changes in Consumption: An Empirical Investigation for Illinois Farm Households

Using repeated cross section data, this study identifies how changes in income (defined over different ranges of income change) affect changes of farm household consumption. OLS regression confirms that the number of members within a farm household positively affects changes of consumption at the 1% significance level, and households with children compared to childless households are recognized to have lower change of consumption at the 5% significance level. In addition, households that experience income increases of more than 50% have higher changes of consumption compared to households who face an income decrease of more than 50% at the 1% significance level. However, no significant change of consumption is found for households with income changes between -50% and +50%. These results are not robust when a smaller dataset is considered. This research is significant because few previous studies have tried determining relevant income change ranges, at which consumption changes significantly with income. The results of the study might be further analyzed to help creditors to decide the typical cash flow demands from farm expenditures and consumption, as well as which farmers are in most need of loans.