Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263969 
Year of Publication: 
2022
Series/Report no.: 
Tinbergen Institute Discussion Paper No. TI 2022-049/VI
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
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: 
D52
D31
D84
E21
Document Type: 
Working Paper

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