Consumption Choices and Earnings Expectations: Empirical Evidence and Structural Estimation

Christian Stoltenberg and Arne Uhlendorff
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Christian Stoltenberg: University of Amsterdam

No 23-022/VI, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: In this paper, we document that households’ consumption expenditures crucially depend on their expected earnings – even after controlling for realized earnings, wealth and time-invariant unobserved characteristics such as permanent income and over-confidence. To explain this evidence, we develop and structurally estimate a standard-incomplete markets model in which rational households receive private signals on their future earnings. We find that households’ earnings uncertainty is significantly lower than what is typically assumed in incomplete markets models. Facing lower earnings uncertainty, households prefer less progressive earnings taxes.

Keywords: Private information; household consumption; earnings dynamics; incomplete markets; subjective expectations. (search for similar items in EconPapers)
JEL-codes: D31 D52 D84 E21 (search for similar items in EconPapers)
Date: 2023-04-28
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Related works:
Working Paper: Consumption Choices and Earnings Expectations: Empirical Evidence and Structural Estimation (2022)
Working Paper: Consumption Choices and Earnings Expectations: Empirical Evidence and Structural Estimation (2022)
Working Paper: Consumption Choices and Earnings Expectations: Empirical Evidence and Structural Estimation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20230022

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