Consumption Choices and Earnings Expectations: Empirical Evidence and Structural Estimation

Christian Stoltenberg () and Arne Uhlendorf ()
Additional contact information
Christian Stoltenberg: MInt, Department of Economics, University of Amsterdam and Tinbergen Institutem, The Netherlands
Arne Uhlendorf: CREST, CNRS, Palaiseau, France
Authors registered in the RePEc Author Service: Arne Uhlendorff

No 2022-15, Working Papers from Center for Research in Economics and Statistics

Abstract: In this paper, we document that households’ consumption expenditures depend on their expected earnings – even after controlling for realized earnings and wealth. To explain this evidence, we develop and structurally estimate a standard-incomplete markets model in which rational households possess private advance information on their future earnings. We find that households are better informed about their future earnings than an econometrician and that individual expectations are more relevant for the consumption choices of households in the left tail of the wealth distribution. Furthermore, households with advance information 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)
Pages: 59 pages
Date: 2022-07-19
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://crest.science/RePEc/wpstorage/2022-15.pdf CREST working paper version (application/pdf)

Related works:
Working Paper: Consumption Choices and Earnings Expectations: Empirical Evidence and Structural Estimation (2023)
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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