Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263659 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15443
Publisher: 
Institute of Labor Economics (IZA), Bonn
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.
Subjects: 
private information
household consumption
earnings dynamics
incomplete markets
subjective expectations
JEL: 
E21
D31
D52
Document Type: 
Working Paper

Files in This Item:
File
Size
1.91 MB





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