scholarly journals Can Consumers Distinguish Persistent from Transitory Income Shocks?

2020 ◽  
Vol 130 (632) ◽  
pp. 2410-2437
Author(s):  
Jeppe Druedahl ◽  
Thomas H Jørgensen
Keyword(s):  
Imperfect Information ◽  
Panel Study ◽  
Income Shocks ◽  
Income Dynamics ◽  
Marginal Propensity To Consume ◽  
Transitory Income ◽  
Marginal Propensity ◽  
Novel Method ◽  
Consumption Saving ◽  
Robust Result

Abstract The degree to which consumers can distinguish persistent from transitory income shocks is paramount for consumption-saving dynamics. In particular, even a small amount of imperfect information causes a severe bias in conventional estimators of the marginal propensity to consume. We provide a novel method that can identify consumers’ degree of information by using panel data on income and consumption, even allowing for measurement error. Employing our method to data from the Panel Study of Income Dynamics, we find that households have almost perfect information. This robust result indicates that the conventional estimators of the marginal propensity to consume are on firm ground.

scholarly journals The Distribution of Wealth and the MPC: Implications of New European Data

2014 ◽  
Vol 104 (5) ◽  
pp. 107-111 ◽  
Author(s):  
Christopher D. Carroll ◽  
Jiri Slacalek ◽  
Kiichi Tokuoka
Keyword(s):  
Wealth Distribution ◽  
Wealth Inequality ◽  
Income Shocks ◽  
Income Dynamics ◽  
Aggregate Consumption ◽  
Distribution Of Wealth ◽  
Marginal Propensity To Consume ◽  
Transitory Shocks ◽  
Transitory Income ◽  
Marginal Propensity

Using a standard, realistically calibrated model of buffer-stock saving with transitory and permanent income shocks, we study how cross-country differences in the wealth distribution and household income dynamics affect the marginal propensity to consume out of transitory shocks (MPC). Across the 15 countries in our sample, we find that the aggregate consumption response ranges between 0.1 and 0.4 and is stronger (i) in economies with large wealth inequality, where a larger proportion of households has little wealth, (ii) under larger transitory income shocks, and (iii) when we consider households only use liquid assets (rather than net wealth) to smooth consumption.

scholarly journals The Household Integrated Economic Survey of Pakistan 1990-91:Internal and External Consistency

1996 ◽  
Vol 35 (1) ◽  
pp. 71-84
Author(s):  
Maarten De Zeeuw
Keyword(s):  
Data Quality ◽  
Labour Force ◽  
Tax Incidence ◽  
Income Dynamics ◽  
Marginal Propensity To Consume ◽  
Marginal Propensity ◽  
Economic Survey ◽  
External Consistency ◽  
Consumer Test ◽  
Direct Tax

After the appearance of Morgenstern's The Accuracy of Economic Observations (1950), data quality should be a matter of abiding concern among economists. The present paper highlights the theme by subjecting the Household Integrated Economic Survey (HIES) 1990'91 to a consumer test. From among all remarkable results, a 10 percent "shortfall" of the reported share of workers in agriculture as compared to the Labour Force Survey stands out. Reservations are also made with regard to employment status of workers, income dynamics for employees and self-employed, foreign and domestic reinittances, i(lter-household transfers, improverishment, the marginal propensity to consume, per capita income, and direct tax incidence. If these issues at stake are not inexplicable, at least some elucidation is obviously required. Recommendations for improving HIES data quality emphasise checking on internal and external consistency, and the elucidation of seemingly remarkable results.

The Response of Consumption to Unanticipated Changes in Income

2017 ◽  
Author(s):  
Tullio Jappelli ◽  
Luigi Pistaferri
Keyword(s):  
Insurance Markets ◽  
Income Shocks ◽  
Experimental Setting ◽  
Subjective Expectations ◽  
The Third ◽  
Marginal Propensity To Consume ◽  
Quasi Experimental ◽  
Marginal Propensity ◽  
The Impact ◽  
Joint Behavior

In this chapter we examine tests of the hypothesis that consumption will respond to unanticipated income changes and that the response will depend on the persistence of the shock and on the degree of imperfection in the credit and insurance markets. The literature has considered three approaches to estimating the effect of income shocks on consumption, that is, the marginal propensity to consume. One identifies episodes in which income changes unexpectedly and seeks to evaluate, in a quasi-experimental setting, how consumption reacts. A second estimates the marginal propensity to consume with respect to income shocks using the covariance restrictions imposed by theory on the joint behavior of consumption and income growth. The third estimates the impact of shocks by combining realizations and expectations of income or consumption in surveys where data on subjective expectations are available.

scholarly journals Fiscal Policy and MPC Heterogeneity

2014 ◽  
Vol 6 (4) ◽  
pp. 107-136 ◽  
Author(s):  
Tullio Jappelli ◽  
Luigi Pistaferri
Keyword(s):  
Precautionary Savings ◽  
Income Risk ◽  
Tax Reforms ◽  
Redistributive Policies ◽  
Italian Survey ◽  
Marginal Propensity To Consume ◽  
Transitory Income ◽  
Marginal Propensity ◽  
Household Responses ◽  
Substantial Heterogeneity

We use responses to survey questions in the 2010 Italian Survey of Household Income and Wealth that ask consumers how much of an unexpected transitory income change they would consume. The marginal propensity to consume (MPC) is 48 percent on average. We also find substantial heterogeneity in the distribution, as households with low cash-on-hand exhibit a much higher MPC than affluent households, which is in agreement with models with precautionary savings, where income risk plays an important role. The results have important implications for predicting household responses to tax reforms and redistributive policies. (JEL D12, D14, E21, E62, H23, H24)

scholarly journals Consumption Inequality and Partial Insurance

2008 ◽  
Vol 98 (5) ◽  
pp. 1887-1921 ◽  
Author(s):  
Richard Blundell ◽  
Luigi Pistaferri ◽  
Ian Preston
Keyword(s):  
Panel Study ◽  
Consumer Expenditure ◽  
Income Shocks ◽  
Income Dynamics ◽  
Transitory Shocks ◽  
Poor Households ◽  
Permanent Shocks ◽  
College Educated ◽  
Imputation Procedure ◽  
Partial Insurance

This paper examines the link between income and consumption inequality. We create panel data on consumption for the Panel Study of Income Dynamics using an imputation procedure based on food demand estimates from the Consumer Expenditure Survey. We document a disjuncture between income and consumption inequality over the 1980s and show that it can be explained by changes in the persistence of income shocks. We find some partial insurance of permanent shocks, especially for the college educated and those near retirement. We find full insurance of transitory shocks except among poor households. Taxes, transfers, and family labor supply play an important role in insuring permanent shocks. (JEL D12, D31, D91, E21)

scholarly journals On the Heterogeneity in Family Earnings and Income Dynamics in the PSID

2018 ◽  
Vol 108 ◽  
pp. 292-296
Author(s):  
Dmytro Hryshko ◽  
Iourii Manovskii
Keyword(s):  
United States ◽  
Panel Study ◽  
Large Body ◽  
The United States ◽  
Income Shocks ◽  
Income Dynamics ◽  
Body Of Knowledge

A large body of knowledge on income dynamics in the United States is based on data from the Panel Study of Income Dynamics (PSID). We find two sets of households in the PSID that differ dramatically in the dynamics of their income. Households headed by the sons of original PSID members have a highly persistent income process, whereas households headed by males who marry daughters of the original PSID members have a much less persistent income process. Using a variety of methods for identification of the persistence of income shocks, we show that these differences, albeit surprising, are highly robust.

Marriage as a Mechanism of Internalizing Externalities: A Case of Smoking

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Jane J. You
Keyword(s):  
Positive Impact ◽  
Panel Study ◽  
Legal Institution ◽  
Income Dynamics ◽  
Negative Externalities ◽  
Long Run ◽  
Married Individuals

Abstract With the view of marriage as a legal institution to internalize externalities, I examine the effect of marriage on smoking. From analyzing the data of Panel Study of Income Dynamics, I found that unmarried individuals are more likely to smoke by 4.9% point than married individuals with stronger impact on females. The long-run impact of marriage also shows that the unmarried individuals smoke more than married individuals but some of its positive impact diminishes within two years. These results on the whole imply that marriage internalizes the negative externalities of smoking and thus leads smokers to reduce smoking.

Using intentions to predict fertility

2021 ◽  
pp. 1-26
Author(s):  
Johannes Norling
Keyword(s):  
Rational Expectations ◽  
Panel Study ◽  
Income Dynamics ◽  
Number Of Children ◽  
Childless Women

Abstract On average, childless women observed by the Panel Study of Income Dynamics report that they intend to have more children than they actually have. A collection of intentions that record only whether respondents intend to have another child can more accurately predict the number of children they have. Errors in the formation of intentions are not required to explain this finding. Rather, if intentions record a survey respondent's most likely predicted number of children, then the average of these intentions does not necessarily equal average actual fertility, even if intentions are formed using rational expectations.

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