Abstract
We use a consumer scan panel on Swedish households to examine how grocery expenditures and consumption change between monthly paychecks. Both categories increase following paycheck, questioning the Life Cycle - Permanent Income Hypothesis. Similar effects are found across all income groups, indicating that the results are not driven by liquidity constraints. The assumption that a fraction of households consume their current income each period instead of smoothing intertemporally has become common in dynamic stochastic general equilibrium models. Using the household specific paycheck impacts on expenditures and consumption we estimate the fraction so called rule-of-thumb consumers to 19 and 10 percent respectively.