Life-Cycle Variations in the Association between Current and Lifetime Income: Country, Cohort and Gender Comparisons

Matthew Lindquist and Anders Böhlmark

No 4/2005, Working Paper Series from Stockholm University, Swedish Institute for Social Research

Abstract: This study applies Haider and Solon’s (2005) generalized errors-in-variables model to Swedish income tax data in order to produce estimates of the association between current and lifetime income. Our estimates of this association demonstrate strong life-cycle patterns. This implies that the widespread use of current income as a proxy for lifetime income (following the standard errors-in-variables model) leads to inconsistent parameter estimates (a.k.a. life-cycle bias). Estimates for comparable cohorts of Swedish and American men demonstrate surprising similarities. There are, however, significant gender and cohort differences in this association which, in turn, lead to statistically significant and quantitatively meaningful differences in life-cycle biases. The results from this study can aid the applied researcher in analyzing and correcting for life-cycle bias.

Keywords: errors-in-variables model; life-cycle bias; lifetime income (search for similar items in EconPapers)
JEL-codes: C10 C40 C50 D31 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2005-08-29
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sofiwp:2005_004

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