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Consumption and Income Smoothing

Author Info

Listed author(s):
  • Francesco Busato
  • Bruno Chiarini
  • Elisabetta Marzano

Abstract

This paper presents a two sector dynamic general equilibrium model in which income smoothing takes place within the households (intra-temporally), and consumption smoothing takes place among the households (inter-temporally). Idiosyncratic risk sharing within the family is based on an income smoothing contract. There are two sectors in the model, the regular sector and the underground sector, and the smoothing comes from the underground sector, which is countercyclical with respect aggregate GDP. The paper shows that the simulated disaggregated consumption and income series (that are the regular and underground consumption flows) are more sensitive to exogenous changes in sector-specific productivity and tax rates than regular and underground income flows, and that this picture is reversed when the aggregate series are considered.

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File URL: http://economia.uniparthenope.it/ise/sito/DP/DP_13_2006.pdf
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Paper provided by D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy in its series Discussion Papers with number 13_2006.

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Date of creation: 01 Jul 2006
Handle: RePEc:prt:dpaper:13_2006
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  24. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
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Cited by:

  1. Raffaella Basile & Bruno Chiarini & Giovanni Luca & Elisabetta Marzano, 2016. "Fiscal multipliers and unreported production: evidence for Italy," Empirical Economics, Springer, vol. 51(3), pages 877-896, November.

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