A Simple Test of Friedman's Permanent Income Hypothesis

Joseph DeJuan () and John Seater ()

Economica, 2006, vol. 73, issue 289, 27-46

Abstract: Friedman's Permanent Income Hypothesis (PIH) predicts that the income elasticity of consumption should be higher for households for which a large fraction of the variation of their income is permanent than for households facing more transitory variations in income. We test this prediction using modern household data from the US Consumer Expenditure Survey. The results offer some support for the PIH.

Date: 2006
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