Comparing the response of different education groups to predictable changes in income

Charles Grant

Journal of Macroeconomics, 2025, vol. 84, issue C

Abstract: The Permanent Income Hypothesis (PIH) can be tested using the excess-sensitivity test, which investigates whether current consumption is affected by predictable changes in income. Several studies have shown that households are overly sensitive to changes in current income, especially if they have low assets. This study shows that university educated households behave according to PIH, but that less educated households are excessively sensitive to predictable changes in income. This result is consistent with the idea that university-educated households are more patient.

Keywords: Consumption; Education; Excess sensitivity (search for similar items in EconPapers)
JEL-codes: D12 D91 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:84:y:2025:i:c:s0164070425000138

DOI: 10.1016/j.jmacro.2025.103676

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