Explaining The Hump In Life Cycle Consumption profiles
- 796 Downloads
This paper documents life cycle (or age) profiles of (log) household income, durable and non-durable consumption for Dutch households after explicitly controlling for time (or business cycle) effects and birth cohort effects. We find that both measures of consumption as well as income is clearly hump shaped over the life cycle. Hence, real consumption per household seems to track income over the life cycle. This empirical regularity is hard to reconcile with basic specifications of the life cycle model. We further document life cycle profiles of demographic and labor supply variables. We argue that part, but not all, of the hump in consumption may be explained by household composition variables. Durable consumption per adult equivalent stays approximately flat until age 60 after which it drops dramatically. This phenomenon may be partly explained by a decrease in work related durable expenditures after retirement. Non-durable consumption per equivalent adult increases steadily until age 55 and stays approximately flat after that.
Keywordsconsumption life cycle profiles durables
JEL Code(s)D12 D91
This article is distributed under the terms of the Creative Commons Attribution Noncommercial License which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
- Auerbach A., Kotlikoff L. (1987) Dynamic Fiscal Policy. Cambridge University Press, CambridgeGoogle Scholar
- Banks J., Blundell R., Tanner S. (1998) ‘Is There a Retirement-Savings Puzzle?’ The American Economic Review 88(4): 769–788Google Scholar
- De Ree, J. and R. Alessie (2008), ‘Home Production and the Allocation of Time and Consumption Over the Life Cycle’, Netspar discussion paper DP 07/2008–020, Netspar, Tilburg University.Google Scholar
- Draper, D. and A. Amstrong (2007), ‘GAMMA, a Simulation Model for Ageing, Pensions and Public Finances’. CPB document no. 147.Google Scholar
- Kalmijn, M. and R. Alessie (2008), ‘Life Course Changes in Income: An Exploration of Age and Stage Effects in a 15-year Panel in the Netherlands’. Discussion paper.Google Scholar