Prediction and Determination of Household Permanent Income

Ramses Abul Naga and Robin Burgess

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: This paper is about the determination and prediction of permanent income in household data. Standard static welfare indicators (e.g. per capita expenditure and income) are imperfect in this respect as they typically contain a high transitory component. The framework we employ is consistent with the permanent income hypothesis but is supplemented with a causes equation where unobservable permanent income is explicitly modelled as a function of causal variables which play a key part in its determination. Simultaneous estimation of the model allows us to compare how well different standard static welfare indicators identify permanent income but more importantly enables us to predict permanent income using information contained both in the causal variables and in the standard static welfare indicators. The paper is closed by an application of the methodology to household data from the rural sectors of two Chinese provinces.

Keywords: Permanent income; prediction; determination; living standards; rural China (search for similar items in EconPapers)
JEL-codes: C31 I30 O12 (search for similar items in EconPapers)
Pages: 28 pages
Date: 1997-08
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Prediction and Determination of Household Permanent Income (1997)
Working Paper: Prediction and determination of household permanent income (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:9705

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