There is an argument often made by economists than Christmas gift-giving is inefficient, as the money spent by the giver is better spent by the recipient, causing a deadweight-loss that is costly. Many critiques have been made of "Scroogenomics", but I have a new one, from a Keynesian perspective. I argue that, given the slack in the economy during the winter, it's good to have additional spending to ensure full employment, especially in an agricultural economy with the potential for starvation of the winter. Even in our modern economies, there will be multiplier effect on economic activity from additional retail sales spending on presents around Christmas, which is much larger quantitatively than the deadweight losses estimated by Waldfogel and others around gift giving. First, we can see that there is a large boost to retail sales in December across many different types of economies, even ones which are not majority Christian, with the weakest effect being seen in Israel, but with a Christmas effect still observable. Next, I estimate a crude multiplier as the ratio of the change in quarterly nominal GDP to the change in retail sales in Q4 for the USA. Even if we net out the pullback in spending and GDP that occurs in Q1 after the Christmas season ends, the economic boost from Christmas is 1.6, while the deadweight loss from Christmas spending is a fraction of the value of retail sales from Christmas, with Waldfogel (2013) estimating deadweight losses of 10% to one-third. Even if we assume that all Q4 retail sales are for Christmas, the multiplier effect is about 5-15 times larger than the deadweight loss effect Waldfogel pointed to. Even if these multipliers are estimated with error, they are much more important quantitatively than the limited deadweight losses.
Next I examine the effect of declining population growth on reduced Christmas spending, following Hansen's 1939 conception of secular stagnation, which has a strong link to declining population growth. Since gift giving increases non-linearly with family size as people give gifts to all other family members, the decline in family sizes will cause Christmas spending to fall significantly. Waldfogel also argued that Christmas spending has become an inferior good, but did not correct for this non-linear household gifting effect, causing his estimates to be biased. Thanks for following along, and Merry Christmas to one and all!
Read the full paper here: link
Next I examine the effect of declining population growth on reduced Christmas spending, following Hansen's 1939 conception of secular stagnation, which has a strong link to declining population growth. Since gift giving increases non-linearly with family size as people give gifts to all other family members, the decline in family sizes will cause Christmas spending to fall significantly. Waldfogel also argued that Christmas spending has become an inferior good, but did not correct for this non-linear household gifting effect, causing his estimates to be biased. Thanks for following along, and Merry Christmas to one and all!
Read the full paper here: link