 Further evidence of excess sensitivity of consumption? Nonseparability among goods and heterogeneity across householdsJaoaqin Alegre and Llorenc Pou Applied Economics, 2008, vol. 40, issue 7, 931-948 Abstract: The standard theoretical framework for analysing households' intertemporal decisions is the life-cycle/permanent income model. Among its implications, testing the model allows to analyse the response of consumption to fiscal policy. However, the empirical literature with microdata has yielded mixed results. This article examines the sensitivity of the results to the assumption of separability among goods and of homogeneity across households. For that purpose, we test a rational expectations permanent income model with household data drawn from the Spanish Family Expenditure Survey. This survey contains detailed information on total expenditure and the income presents large, exogenous quarterly changes due to an institutional feature. The article shows that assuming separability among commodities biases the test against the model. When separability is not imposed, we show that the rejection of the model depends on heterogeneity across households in terms of their members being unemployed or not. For those households permanently employed, the model cannot be rejected whatever their income status. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:40:y:2008:i:7:p:931-948 Ordering information: This journal article can be ordered from DOI: 10.1080/00036840600749896 Access Statistics for this article Applied Economics is currently edited by Anita Phillips More articles in Applied Economics from Taylor & Francis Journals |
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