Permanent income (PI) is an enduring concept in the social sciences and is
highly relevant to the study of inequality. Nevertheless, there has been insufficient progress
in measuring PI. We calculate a novel measure of PI with the German Socio-Economic
Panel (SOEP) and U.S. Panel Study of Income Dynamics (PSID). Advancing beyond
prior approaches, we define PI as the logged average of 20+ years of post-tax and posttransfer
(“post-fisc”) real equivalized household income. We then assess how well various
household- and individual-based measures of economic resources proxy PI. In both datasets,
post-fisc household income is the best proxy. One random year of post-fisc household
income explains about half of the variation in PI, and 2–5 years explain the vast majority
of the variation. One year of post-fisc HH income even predicts PI better than 20+
years of individual labor market earnings or long-term net worth. By contrast, earnings,
wealth, occupation, and class are weaker and less cross-nationally reliable proxies for PI.
We also present strategies for proxying PI when HH post-fisc income data are unavailable,

• How to measure and proxy permanent income: evidence from Germany and the U.S.