A panel data model for subjective information on household income growth
AbstractSubjective expectations about future income changes are analyzed, using household panel data. The models used are extensions of existing binary choice panel data models to the case of ordered response. We consider static models with random and fixed individual effects. We also look at a dynamic random effects model which includes a measure for permanent and transitory income. We find that income change expectations strongly depend on realized income changes in the past: those whose income fell, are more pessimistic than others, while those whose income rose are more optimistic. Expected income changes are also significantly affected by employment status, family composition, permanent income, and past expectations. Expectations are then compared to the head of households ex post perception of the realized income change for the same period. The main finding is that rational expectations are rejected, and that in particular, households whose income has decreased in the past underestimate their future income growth.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Behavior & Organization.
Volume (Year): 40 (1999)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/jebo
Other versions of this item:
- Das, J.W.M. & Soest, A.H.O. van, 1996. "A panel data model for subjective information on household income growth," Open Access publications from Tilburg University urn:nbn:nl:ui:12-121740, Tilburg University.
- Das, J.W.M. & Soest, A.H.O. van, 1996. "A Panel Data Model for Subjective Information on Household Income Growth," Discussion Paper 1996-75, Tilburg University, Center for Economic Research.
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
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