Estimating dynamic models of household behavior

Within the empirical literature on structural models of dynamic optimization, there has been a recent thrust towards treating the equilibrium aspects explicitly, rather than leaving undefined the role that market interactions play. Nowhere has this effort been more evident than in panel studies of households that estimate preferences over consumption and leisure and test the efficiency of labor and financial markets. This branch of research provides the starting point for this dissertation which focuses on the estimation of life-cycle models of household behavior.;Chapter 3 studies the degree to which the integration of markets is reflected at the household level. Trade and factor price equalization theorems have established that, if there is enough trade, the prices of those goods and services which are not traded across national boundaries will also be equalized globally. A powerful test of integration, then, is to focus on goods and services that are not normally traded on international markets. To this end Chapter 3 conducts an empirical study of male leisure and housing consumption by married couples in the United States and Germany with panel data.;Chapter 4 of the dissertation enriches the institutional environment by incorporating income taxation into the basic framework. The model is estimated using parametric, non-parametric and semiparametric estimation procedures. Chapter 4 shows how to use the estimation results to analyze the impact of income taxation on the distribution of economic welfare. Chapter 5 gives the concluding remarks and discusses potential avenues for future research.;Chapter 2 reviews the methodological issues associated with estimating and testing dynamic continuous models of household behavior with panel data. It provides a general framework for analyzing household behavior in a life-cycle model, which is based on the null hypothesis that competitive and complete markets (CCM) exist. The basic framework imposes a number of strong restrictions on the market structure, the admissible set of preferences and the role of the institutional environment. Some of these restrictions can be avoided as shown in the next two chapters of the dissertation.