De Economist

, Volume 157, Issue 1, pp 107–120

Explaining The Hump In Life Cycle Consumption profiles

Open Access
Notes and Communications

DOI: 10.1007/s10645-009-9119-4

Cite this article as:
Alessie, R. & de Ree, J. De Economist (2009) 157: 107. doi:10.1007/s10645-009-9119-4

Summary

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.

Keywords

consumption life cycle profiles durables 

JEL Code(s)

D12 D91 

Copyright information

© The Author(s) 2009

Authors and Affiliations

  1. 1.University of Groningen, Netspar and Tinbergen Institute, Faculty of Economics and BusinessGroningenThe Netherlands
  2. 2.DIW BerlinBerlin (Mitte)Germany

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