Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273833 
Year of Publication: 
2023
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2023-022/VI
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
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.
Subjects: 
Private information
household consumption
earnings dynamics
incomplete markets
subjective expectations.
JEL: 
E21
D31
D84
D52
Document Type: 
Working Paper

Files in This Item:
File
Size
1.61 MB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.