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Abstract

Expectations and riskiness of future earnings are crucial determinants of individuals' intertemporal choices. Yet, the empirical literature lacks reliable measures of the distribution of future income. Lacking direct observability, the latter is usually estimated inferring the mean, the variance and other moments of the distribution from income realizations on panel data. In this paper we rely instead on subjective expectations available in the 1995 Survey of Household Income and Wealth, a large random sample representative of Italian households. The survey elicits information on the distribution of future earnings and the probability of employment in a very simple and parsimonious way. Based on the responses, we estimate the individual distributions of expected earnings conditional on working as well as unconditional. We can then relate various moments of these distributions to demographic and economic variables observable in the cross-section.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2043.

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Date of creation: Dec 1998
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Handle: RePEc:cpr:ceprdp:2043

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Related research

Keywords: income risk; Subjective Expectations; Unemployment;

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Find related papers by JEL classification:

• E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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1. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January.
   
   • Caballero, R.J., 1988. "Consumption Puzzles And Precautionary Savings," Discussion Papers 1988_05, Columbia University, Department of Economics.
2. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
   
   • Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
3. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
4. Jeff Dominitz, 1998. "Earnings Expectations, Revisions, And Realizations," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 374-388, August.
5. Das, Marcel & Donkers, Bas, 1999. "How Certain Are Dutch Households about Future Income? An Empirical Analysis," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(3), pages 325-38, September.
   
   • Das, J.W.M. & Donkers, A.C.D., 1997. "How Certain are Dutch Households about Future Income? An Empirical Analysis," Discussion Paper 1997-38, Tilburg University, Center for Economic Research.
6. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings Uncertainty and Precautionary Saving," CEPR Discussion Papers 699, C.E.P.R. Discussion Papers.
   
   • Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings uncertainty and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 307-337, November.
   • Giucca, P. & Jappelli, T. & Terlizzese, D., 1992. "Earning Uncertainty and Precautionary Saving," Papers 161, Banca Italia - Servizio di Studi.
7. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," NBER Working Papers 4937, National Bureau of Economic Research, Inc.
   
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   • J. Dominitz & C. F. Manski, . "Using expectations data to study subjective income expectations," Institute for Research on Poverty Discussion Papers 1050-94, University of Wisconsin Institute for Research on Poverty.
8. Jeff Dominitz & Charles F. Manski, 1996. "Perceptions of Economic Insecurity: Evidence from the Survey of Economic Expectations," NBER Working Papers 5690, National Bureau of Economic Research, Inc.
   
   • J. Dominitz & C. F. Manski, . "Perceptions of Economic Insecurity: Evidence from the Survey of Economic Expectations," Institute for Research on Poverty Discussion Papers 1105-96, University of Wisconsin Institute for Research on Poverty.
   • Dominitz, J. & Manski, C.F., 1996. "Perceptions of Economic Insecurity: Evidence from the Survey of Economic Expectations," Working papers 9614, Wisconsin Madison - Social Systems.
9. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
10. Martin Browning & Lars Peter Hansen & James J. Heckman, 1999. "Micro Data and General Equilibrium Models," Discussion Papers 99-10, University of Copenhagen. Department of Economics.
    
    • Browning, Martin & Hansen, Lars Peter & Heckman, James J., 1999. "Micro data and general equilibrium models," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 8, pages 543-633 Elsevier.
11. Flinn, Christopher J, 2002. "Labour Market Structure and Inequality: A Comparison of Italy and the U.S," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 611-45, July.
12. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
13. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.

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Cited by:

1. Arie Kapteyn & Constantijn Panis, 2003. "The Size and Composition of Wealth Holdings in the United States, Italy, and the Netherlands," Working Papers 03-05, RAND Corporation Publications Department.
   
   • Arie Kapteyn & Constantijn Panis, 2003. "The Size and Composition of Wealth Holdings in the United States, Italy, and the Netherlands," NBER Working Papers 10182, National Bureau of Economic Research, Inc.
2. Guiso, Luigi & Jappelli, Tullio, 2000. "Household Portfolios in Italy," CEPR Discussion Papers 2549, C.E.P.R. Discussion Papers.
   
   • Luigi Guiso & Tullio Jappelli, 2000. "Household Portfolios in Italy," CSEF Working Papers 43, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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