TY  - RPRT
        AU  - Basso, Henrique S.
AU  - Bover, Olympia
AU  - Galvez, Julio
AU  - Hospido, Laura
        TI  - Perceived versus Realized Income Dynamics: Evidence from Subjective Expectations
        PY  - 2026/Sep/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 18935
        UR  - https://www.iza.org/publications/dp18935
        AB  - Household consumption and saving depend on perceived income risk, yet macroeconomic models typically discipline income processes using realized data. We show that these objects differ systematically. We develop a framework to recover flexible income processes from subjective expectations reported over fixed intervals, accounting for coarse elicitation and focal responses. Households perceive income as more persistent and less dispersed, with weaker state-dependent nonlinear dynamics than realized histories imply. These differences survive adjustments for reporting, measurement error, and horizon differences. In a life-cycle model, they affect precautionary saving and wealth accumulation; when households save according to perceived dynamics but face realized shocks, consumption insurance falls substantially.
        KW  - subjective expectations
KW  - income dynamics
KW  - nonlinear persistence
KW  - consumption
KW  - precautionary saving
KW  - life-cycle
KW  - panel data
        ER  -