Using Subjective Income Expectations to test the Permanent Income Hypothesis: Evidence from Chinese micro-data

Author Name YIN Ting  (Fellow, RIETI) /KUREISHI Wataru  (National Institute of Population and Social Security Research) /WAKABAYASHI Midori  (Tohoku University)
Creation Date/NO. April 2015 15-J-016
Research Project A Socioeconomic Analysis of Households in Environments Characterized by Aging Population and Low Birth Rates
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In this paper, we examine whether consumption is in response to the change of expectations of income in urban China, namely, testing for excess sensitivity of consumption using subjective income expectations from the panel "Survey of Living Preferences and Satisfaction," conducted at Osaka University. The estimated results by instrumental variables (IV) show that the growth rates of consumption and actual income are not affected by income growth rate expectations in all periods of 2009-2010, 2010-2011, and 2009-2011. This implies that the expectations of income growth have no effect on the growth of consumption, which suggests that the rectangular condition of the permanent income hypothesis is satisfied in urban China.