Tests of the Permanent Income Theory With Continuous Budgets.

The article examines the tests of the permanent income theory with continuous budgets. It is explained that the primary problem in testing the permanent income theory has been the absence of data giving for each household income and consumption over many years. In the article researchers have been able to obtain two small samples of such five-year income and consumption data, and have used them for a series of tests of the permanent income theory. The tests have resulted in a rejection of the proportionality hypothesis and the hypothesis of a long lag. The data presented in the article measures consumption in the conventional way, which means the researchers include the purchase rather than use of durables in consumption.