Can Permanent-Income Theory Explain Cross-Sectional Consumption Patterns?
Author InfoJohn Sabelhaus Jeffrey A. Groen Abstract The prediction that consumption-income ratios should decline as income rises in cross-sectional data is a feature of Friedman’s (1957) permanent income hypothesis and other consumption-smoothing models. The theory thus provides a link between longitudinal income data and cross-sectional expenditure data: given measured income variability and a functional relationship between consumption and permanent income, we predict cross-sectional expenditure patterns and compare those predictions to actual values. Our approach cannot explain the actual skewness in consumption-income ratios under even the strictest consumptionsmoothing model, which implies that income measurement error or other anomalies are affecting the data. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog Download InfoTo download: If you experience problems downloading a file, check if you have the proper application to view i
