Chilean Household Income Function: Life Cycle and Persistence of Shocks

Abstract

Statistical information about households, coming from the National Statistics Bureau’s supplementary income survey for 1990-1998 (approximately 30,000 homes annually) reveals that the expected component of Chilean households’ income function is significantly determined by the effects of age, generational cohort, and time, along with a set of idiosyncratic household characteristics. To determine the dynamics of the random component, the process that supports the average residue by generation is estimated, which seems to be best described by either a moving average process of first and second order, or an autoregressive process of first order. However, separating by educational level, only the income functions of low-educationhead households follow these processes, accepting white noise for higher-education households, which accounts for the influence of less educated households in the results for the full sample