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A Panel Data Model for Subjective Information on Household Income Growth

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  • Das, J.W.M.
  • Soest, A.H.O. van

    (Tilburg University, Center for Economic Research)

Abstract

Subjective 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 both random and fixed individual effects.The random effects model is estimated by maximum likelihood.The fixed effects model is estimated by combining conditional fixed effects logit estimates using minimum distance.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 and family composition.Using the same type of models, subjective expectations are then confronted with the head of household's ex post perception of the realized income change for the same period.The main finding is that households whose income has decreased in the past underestimate their future income growth.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1996-75.

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Date of creation: 1996
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Handle: RePEc:dgr:kubcen:199675

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Web page: http://center.uvt.nl

Related research

Keywords: panel data; household economics; household income;

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  1. Christopher D. Carroll, 1992. "How does future income affect current consumption?," Working Paper Series / Economic Activity Section 126, Board of Governors of the Federal Reserve System (U.S.).
  2. Das, J.W.M. & Soest, A.H.O. van, 1995. "Expected and realized income changes: Evidence from the Dutch socio-economic panel," Discussion Paper 1995-52, Tilburg University, Center for Economic Research.
  3. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
  4. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," NBER Working Papers 4937, National Bureau of Economic Research, Inc.
  5. Friedhelm PFEIFFER & Winfried POHLMEIER, 1992. "Income, Uncertainty and the Probability of Self-Employment," Discussion Papers (REL - Recherches Economiques de Louvain) 1992032, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. Alessie, Rob & Lusardi, Annamaria, 1997. "Saving and income smoothing: Evidence from panel data," European Economic Review, Elsevier, vol. 41(7), pages 1251-1279, July.
  7. Giucca, P. & Jappelli, T. & Terlizzese, D., 1992. "Earning Uncertainty and Precautionary Saving," Papers 161, Banca Italia - Servizio di Studi.
  8. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, vol. 50(3), pages 761-64, May.
  9. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1996. "Income Risk, Borrowing Constraints, and Portfolio Choice," American Economic Review, American Economic Association, vol. 86(1), pages 158-72, March.
  10. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  11. Lusardi, Annamaria, 1997. "Precautionary saving and subjective earnings variance," Economics Letters, Elsevier, vol. 57(3), pages 319-326, December.
  12. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  13. repec:att:wimass:8905 is not listed on IDEAS
  14. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
  15. Alessie, Rob & Lusardi, Annamaria & Aldershof, Trea, 1997. "Income and Wealth over the Life Cycle: Evidence from Panel Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(1), pages 1-32, March.
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