The Implications of Richer Earnings Dynamics for Consumption, Wealth, and Welfare

Gonzalo Paz-Pardo, Giulio Fella and Mariacristina De Nardi

No 149, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: Earnings dynamics are richer than those typically used in macro models. This paper provides multiple contributions. First, it proposes a non-parametric way to model rich earnings dynamics that is easy to use in structural models. Second, it constructs a large, synthetic, data set that matches the earnings dynamics of the U.S. tax earnings. Third, it estimates our non-parametric earnings processes using two data sets: the Panel Study of Income Dynamics and our synthetic tax data. Fourth, it compares the implications of our earnings processes to those of a standard AR(1) in a life cycle structural model of savings and consumption.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:149

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