An Empirical Assessment of Permanent Income Hypothesis: Evidence from Households Consumption Patterns in North-East Senatorial District of Akwa Ibom State

Abstract

This study empirically investigates the applicability of the Permanent Income Hypothesis (PIH) to household consumption expenditure in Akwa Ibom State, Nigeria, using primary data from 403 households. Data were collected on household income, consumption expenditure, savings, and socio-demographic characteristics through structured questionnaires. Descriptive and inferential analyses, including correlation and multiple regression with log-transformed income, were employed to examine the relationship between household income and consumption patterns. Findings reveal a strong and significant positive association between household income and consumption expenditure, supporting the PIH prediction that household smooth consumption based on expected permanent income. Non-linear analysis further indicates that higher-income households tend to spend proportionally more, while increased savings reduce current consumption, reflecting forward-looking behavior. Demographic factors such as age, household size, and education exhibit minimal influence on consumption. The study provides robust micro-level evidence of the PIH in a sub-national context and highlights the importance of income stability and savings for consumption planning. Policy interventions aimed at stabilizing household income and promoting savings are recommended to enhance economic well-being.