Explaining The <Emphasis Type="Italic">Hump</Emphasis> In Life Cycle Consumption profiles |
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Authors: | Rob Alessie Joppe de Ree |
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Institution: | (1) University of Groningen, Netspar and Tinbergen Institute, Faculty of Economics and Business, P.O. Box 800, 9700 AV Groningen, The Netherlands;(2) DIW Berlin, Mohrenstrasse 58, 10117 Berlin (Mitte), Germany |
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Abstract: | 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.
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Keywords: | consumption life cycle profiles durables |
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