A direct test of the Permanent Income Hypothesis. Some evidence from Spanish regional data

The aim of this paper is to provide some evidence on the Permanent Income Hypothesis, using Spanish regional data over the period 1980-2003. Following a direct approach first proposed by Kormendi and LaHaye (1987), we want to test whether the data support the idea that an income innovation triggers a revision in consumption equal to the revision in permanent income. The empirical results confirm the latter prediction in a weak sense.