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Life Cycle Time Allocation and Saving in an Imperfect Capital Market

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  • Patricia Apps
  • Ray Rees

Abstract

This paper combines income and expenditure with time use data to provide a unique picture of the time paths of labour supplies, saving and full consumption for two-adult households over the life cycle. These data are used to test the life cycle model presented in the paper, at the core of which is the hypothesis that households face a borrowing interest rate that rises sharply with the amount of non collateral based borrowing. The household members jointly choose time paths of time use, consumption and saving over their life cycle in the face of this capital market imperfection. This model explains the data much better than does the alternative hypothesis of a perfect capital market. Finally, households are shown to differ significantly in their saving behaviour in a way that depends on secondary earner labour supply, with a strong positive association between saving and the secondary earner's income.

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File URL: http://cbe.anu.edu.au/research/papers/ceprdpapers/DP475.pdf
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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 475.

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Length: 37 pages
Date of creation: Aug 2004
Date of revision:
Handle: RePEc:auu:dpaper:475

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Keywords: saving; labour supply; imperfect capital market; life cycle;

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Cited by:
  1. Honekamp, Ivonne, 2008. "Effizienz der staatlichen Riester-Förderung - Eine empirische Analyse mit dem Sozio-oekonomischen Panel (SOEP)
    [Effectiveness of the public Riester subsidies - An empirical analysis using the Soci    ," MPRA Paper 27020, University Library of Munich, Germany.
  2. Frank van Erp & Paul de Hek, 2009. "Analyzing labour supply of elderly people: a life-cycle approach," CPB Document 179, CPB Netherlands Bureau for Economic Policy Analysis.

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