On the Effect of the Great Recession on US Household Expenditures for Entertainment

This paper empirically investigates potential effects of economic recessions on consumers’ decision-making process for leisure activities using the Consumer Expenditure Survey (CES) data during the Great Recession. Recognizing the presence of a high degree of censoring, we employ the Tobit model to assess the income effect on recreational activities in order to avoid bias in the least squares estimator for the latent coefficients. Income coefficient estimates are significantly positive in all years we consider, confirming that leisure is a normal good. However, we observe statistically significant decreases in the income coefficient during recession years in two out of three categories of leisure activities. That is, the responsiveness of consumption to income changes decreases during recession years, which implies a sluggish adjustment in leisure expenditures when economic distress is elevated.