Consumption over the life cycle: The role of annuities |
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Authors: | Gary D Hansen Selahattin mrohorolu |
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Institution: | aDepartment of Economics, University of California, Box 951477, Los Angeles, CA 90095-1477, USA;bMarshall School of Business, University of Southern California, 701 Exposition Blvd., Suite 701, Los Angeles, CA 90089-1427, USA |
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Abstract: | We explore the quantitative implications of uncertainty about the length of life and a lack of annuity markets for life cycle consumption in a general equilibrium overlapping generations model in which markets are otherwise complete. Empirical studies find that consumption displays a hump shape over the life cycle. Our model exhibits life cycle consumption that is consistent with this pattern. Our calibrated model, which includes an unfunded social security system, displays a hump shape but the peak occurs later in the life cycle than in the data. Adding a bequest motive causes this decline to begin at a younger age. |
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Keywords: | Life cycle consumption General equilibrium Annuity markets Social security Bequests |
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