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The Relative Size of Windfall Income and the Permanent Income Hypothesis |
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| Authors: | James P. Keeler William L. James Mohamed Abdel-Ghany |
| Affiliation: | 1. Department of Economics , Kenyon College, Gambier, OH 43022;2. Department of Economics, Finance, and Legal Studies , University of Alabama , University , AL , 35486;3. Department of Management and Marketing , University of Alabama , University , AL , 35486;4. Department of Consumer Sciences , University of Alabama , University , AL , 35486 |
| Abstract: | A reconciliation is offered for the diverse test results on Friedman's permanent income hypothesis. A large data sample of those receiving windfall income in the Bureau of Labor Statistics' 1972–1973 Consumer Expenditure Survey is divided according to the size of the windfall relative to estimated permanent income. A pattern of a declining marginal propensity to consume windfall income as the relative size of the windfall increases is apparent. These results support the permanent income hypothesis for relatively large windfalls. |
| Keywords: | Stability of coefficients CUSUM of squares test Marginal propensity to consume |