Consumption Smoothing in Russia: An Achievement of Mutual Insurance, or a Byproduct of Savings and Loans

This paper uses a household-level panel dataset, ranging from 1998 to 2014, to examine the effectiveness of consumption smoothing mechanisms in low, middle, and high-income households in Russia. Unlike existing literature, this study uses three indicators of income shock and take into account three major consumption smoothing mechanisms in its analysis. The results suggest that consumption smoothing is more likely achieved through the use of savings for high-income households, and of mutual insurance for low-income households. More specifically, high-income households that save can reduce the magnitude that income shock affects their per-capita food consumption expenditures by between 1.814 to 5.069 Rubles per percentage change in income. On the other hand, the use of savings does not help low-income households smooth their consumption. Instead, in contrast with existing research, this study finds a possibility that low-income households may achieve perfect consumption smoothing (full insurance) through mutual insurance