Prediction and Determination of Household Permanent Income
AbstractThis paper is about the determination and prediction of permanent income in household data. Standard static welfare indicators (e.g. per capita expenditure and income) are imperfect in this respect as they typically contain a high transitory component. The framework we employ is consistent with the permanent income hypothesis but is supplemented with a causes equation where unobservable permanent income is explicitly modelled as function of causal variables which play a key part in its determination. Simultaneous estimation of the model allows us to compare how well different standard static welfare indicators identify permanent income but more importantly enables us to predict permanent income using information contained both in the causal variables and in the standard static welfare indicators. The paper is closed by an pplication of the methodology to household data from the rual sector of two Chinese provinces.
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Bibliographic InfoPaper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Distributional Analysis Research Programme Papers with number 32.
Date of creation: Nov 1997
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permanent income; prediction; determination; living standards; rural China;
Other versions of this item:
- Ramses ABUL NAGA & Robin BURGESS, 1997. "Prediction and Determination of Household Permanent Income," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 9705, Université de Lausanne, Faculté des HEC, DEEP.
- I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
- C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
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