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Semi-parametric models for satisfaction with income

  • Charles Bellemare

    (Institute for Fiscal Studies)

  • Bertrand Melenberg

    (Institute for Fiscal Studies)

  • Arthur van Soest

    (Institute for Fiscal Studies)

An overview is presented of some parametric and semi-parametric models, estimators, and specification tests that can be used to analyze ordered response variables. In particular, limited dependent variable models that generalize ordered probit are compared to regression models that generalize the linear model. These techniques are then applied to analyze how self-reported satisfaction with household income relates to household income, family composition, and other background variables. Data are drawn from the 1998 wave of the German Socio- Economic Panel. The results are used to estimate equivalence scales and the cost of children. We find that the standard ordered probit model is rejected, while some semi-parametric specifications survive specification tests against nonparametric alternatives. The estimated equivalence scales, however, are often similar for the parametric and semi-parametric specifications.

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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP12/02.

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Length: 36 pp.
Date of creation: Mar 2002
Date of revision:
Handle: RePEc:ifs:cemmap:12/02
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