Corporate retained earnings and personal sector saving: a test of the life-cycle hypothesis of saving |
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| Authors: | Christos N. Pitelis |
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| Affiliation: | Department of Industrial Economics , University of Nottingham, University Park , Nottingham , NG7 2RD , UK |
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| Abstract: | The dynamic personal saving function proposed by Swamy (1968) nests in a common framework, the life-cycle hypothesis (LCH) and the Houthakker-Taylor (1970) model of saving. Having accounted for a limitation of the generality of the Swamy result, which regards the role of corporate retention in the two models, the Swamy framework is used to test the LCH implication of perfect substitutability between personal saving and corporate retained earnings using UK data for the 1951–83 period. The empirical results cast doubt on the perfect substitution hypothesis. |
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