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Windfall Income and the Permanent Income Hypothesis: New Evidence
Author(s) -
ABDELGHANY MOHAMED,
BIVENS GORDON E.,
KEELER JAMES P.,
JAMES WILLIAM L.
Publication year - 1983
Publication title -
journal of consumer affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.582
H-Index - 62
eISSN - 1745-6606
pISSN - 0022-0078
DOI - 10.1111/j.1745-6606.1983.tb00303.x
Subject(s) - permanent income hypothesis , economics , windfall gain , marginal propensity to consume , passive income , adjusted gross income , gross income , labour economics , income in kind , income distribution , household income , public economics , monetary economics , macroeconomics , state income tax , life cycle hypothesis , history , tax reform , archaeology , market liquidity , mathematical analysis , mathematics , inequality
This paper examines consumer response to windfall income. By using data from the 1972–73 Consumer Expenditure Surveys, an attempt was made to test Friedman's permanent income hypothesis. The results revealed that the marginal propensity to consume regular income was greater than the marginal propensity to consume windfall income for windfalls that were large relative to regular income. However, when windfall income was less than ten percent of regular income, the relationship reversed. Implications are drawn for short and long‐run fiscal policies affecting consumers