Consumption smoothing in less developed countries: a puzzle
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"This paper presents evidence of household consumption responses to income fluctuations and shocks by exploiting new panel datasets from Nicaragua and Colombia. We find a low, but statistically significant response of consumption to income changes. This respond is asymmetrical to the sign of the change in income. Both Colombia and Nicaragua shows (low) consumption responses to labor shocks and, in the case of Colombia, responses to health shocks. This low level response to income and shocks are puzzling, given the hypothesis of several market failures and incomplete markets in less developed countries."