Prediction and determination of household permanent income

Abul Naga, Ramses H. and Burgess, Robin (1997) Prediction and determination of household permanent income. Distributional Analysis Research Programme; DARP 32 (DARP/32). Suntory and Toyota International Centres for Economics and Related Disciplines, London, UK.

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Abstract

This paper is about the determination and prediction of permanent income in household data. Standard static welfare indicators (e.g. per capita expenditure and income) are imperfect in this respect as they typically contain a high transitory component. The framework we employ is consistent with the permanent income hypothesis but is supplemented with a causes equation where unobservable permanent income is explicitly modelled as a function of causal variables which play a key part in its determination. Simultaneous estimation of the model allows us to compare how well different standard static welfare indicators identify permanent income but more importantly enables us to predict permanent income using information contained both in the causal variables and in the standard static welfare indicators. The paper is closed by an application of the methodology to household data from the rural sectors of two Chinese provinces.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://sticerd.lse.ac.uk
Additional Information:	© 1997 by the authors
Divisions:	Economics STICERD
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	I - Health, Education, and Welfare > I3 - Welfare and Poverty > I30 - General O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C31 - Cross-Sectional Models; Spatial Models; Treatment Effect Models
Date Deposited:	27 Apr 2007
Last Modified:	15 Sep 2023 22:44
URI:	http://eprints.lse.ac.uk/id/eprint/2143

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