Hello! I'm purposely not providing the code as this question is more conceptual.
I am trying to study the relationship between income and preferences for redistribution. I have a panel dataset.
I can simply the model (1): preferences = alpha + income + e.
However, I'm also interested in the change in income rather than the level variable.
In that case I might run (2) preferences = alpha + ∆income + e.
My question is, does only first differencing the income variable okay? Additionally, is including ∆income any different from just including the level of income?
Cause even if model (1) is using level variables, they do change across years, so I'm now a bit confused if I will even get different results by first differencing income. Thanks!
I am trying to study the relationship between income and preferences for redistribution. I have a panel dataset.
I can simply the model (1): preferences = alpha + income + e.
However, I'm also interested in the change in income rather than the level variable.
In that case I might run (2) preferences = alpha + ∆income + e.
My question is, does only first differencing the income variable okay? Additionally, is including ∆income any different from just including the level of income?
Cause even if model (1) is using level variables, they do change across years, so I'm now a bit confused if I will even get different results by first differencing income. Thanks!
