Estimating individual responses when tomorrow matters

Stéphane Bonhomme and Angela Denis
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Stéphane Bonhomme: Banco de España

No 2405, Working Papers from Banco de España

Abstract: We propose a regression-based approach to estimate how individuals’ expectations influence their responses to a counterfactual change. We provide conditions under which average partial effects based on regression estimates recover structural effects. We propose a practical three-step estimation method that relies on subjective beliefs data. We illustrate our approach in a model of consumption and saving, focusing on the impact of an income tax that not only changes current income but also affects beliefs about future income. Applying our approach to Italian survey data, we find that individuals’ beliefs matter for evaluating the impact of tax policies on consumption decisions.

Keywords: dynamics; subjective expectations; beliefs; semi-structural estimation (search for similar items in EconPapers)
JEL-codes: C10 C50 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2024-02
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https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... 24/Files/dt2405e.pdf First version, February 2024 (application/pdf)

Related works:
Working Paper: Estimating Individual Responses when Tomorrow Matters (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2405

DOI: 10.53479/36092

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