TY  - JOUR
A1  - Brady, David
A1  - Giesselmann, Marco
A1  - Kohler, Ulrich
A1  - Radenacker, Anke
T1  - How to measure and proxy permanent income
BT  - evidence from Germany and the US
JF  - The Journal of Economic Inequality
N2  - Permanent income (PI) is an enduring concept in the social sciences and is highly relevant to the study of inequality. Nevertheless, there has been insufficient progress in measuring PI. We calculate a novel measure of PI with the German Socio-Economic Panel (SOEP) and U.S. Panel Study of Income Dynamics (PSID). Advancing beyond prior approaches, we define PI as the logged average of 20+ years of post-tax and post-transfer ("post-fisc") real equivalized household income. We then assess how well various household- and individual-based measures of economic resources proxy PI. In both datasets, post-fisc household income is the best proxy. One random year of post-fisc household income explains about half of the variation in PI, and 2-5 years explain the vast majority of the variation. One year of post-fisc HH income even predicts PI better than 20+ years of individual labor market earnings or long-term net worth. By contrast, earnings, wealth, occupation, and class are weaker and less cross-nationally reliable proxies for PI. We also present strategies for proxying PI when HH post-fisc income data are unavailable, and show how post-fisc HH income proxies PI over the life cycle. In sum, we develop a novel approach to PI, systematically assess proxies for PI, and inform the measurement of economic resources more generally.
KW  - Income
KW  - Permanent income
KW  - Lifetime income
KW  - Measurement
KW  - Longitudinal and panel data
KW  - Social class
Y1  - 2018
U6  - https://doi.org/10.1007/s10888-017-9363-9
SN  - 1569-1721
SN  - 1573-8701
VL  - 16
IS  - 3
SP  - 321
EP  - 345
PB  - Springer
CY  - Dordrecht
ER  -