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Life Cycle Time Allocation and Saving in an Imperfect Capital Market

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Author Info
Patricia Apps
Ray Rees

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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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Publisher Info
Paper provided by Centre for Economic Policy Research, Research School of Social Sciences, 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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Related research
Keywords: saving; labour supply; imperfect capital market; life cycle;

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Find related papers by JEL classification:
D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Blundell, Richard & Browning, Martin & Meghir, Costas, 1994. "Consumer Demand and the Life-Cycle Allocation of Household Expenditures," Review of Economic Studies, Blackwell Publishing, vol. 61(1), pages 57-80, January. [Downloadable!] (restricted)
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  2. Carroll, Christopher D, 1994. "How Does Future Income Affect Current Consumption?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 111-47, February. [Downloadable!] (restricted)
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  3. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
  4. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
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  5. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 23-45, Summer. [Downloadable!] (restricted)
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  6. Attanasio, O.P. & Browning, M., 1993. "Consumption Over the Life Cycle and Over the Business Cycle," Papers 9314, Tilburg - Center for Economic Research.
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  7. Martin Browning & Mette Ejrnæs, 2002. "Consumption and Children," CAM Working Papers 2002-06, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics. [Downloadable!]
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  8. Orazio P. Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and Bumps in Lifetime Consumption," NBER Working Papers 5350, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Marianne Baxter & Urban J. Jermann, 1999. "Household Production and the Excess Sensitivity of Consumption to Current Income," NBER Working Papers 7046, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 1-55, February.
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  11. Apps, Patricia & Rees, Ray, 2001. "Fertility, Female Labor Supply and Public Policy," IZA Discussion Papers 409, Institute for the Study of Labor (IZA). [Downloadable!]
  12. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, vol. 59(5), pages 1221-48, September. [Downloadable!] (restricted)
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  13. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January. [Downloadable!] (restricted)
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  14. Deaton, A. & Grosh, M., 1998. "Consumption," Papers 191, Princeton, Woodrow Wilson School - Development Studies.
  15. Apps, Patricia & Rees, Ray, 2001. "Household Saving and Full Consumption over the Life Cycle," IZA Discussion Papers 280, Institute for the Study of Labor (IZA). [Downloadable!]
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  16. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May. [Downloadable!] (restricted)
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  17. Apps, Patricia & Rees, Ray, 2000. "Household Production, Full Consumption and the Costs of Children," IZA Discussion Papers 157, Institute for the Study of Labor (IZA). [Downloadable!]
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  18. Orazio Attanasio & James Banks, 1998. "Trends in household saving: a tale of two countries," IFS Working Papers W98/15, Institute for Fiscal Studies.
  19. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1992-2), pages 61-156. [Downloadable!]
  20. Martin Browning & Thomas F. Crossley, 2001. "The Life-Cycle Model of Consumption and Saving," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 3-22, Summer. [Downloadable!] (restricted)
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  21. Attanasio, O. & Low, H. & Sanchez-Marcos, V., 2004. "Explaining Changes in Female Labour Supply in a Life-cycle Model," Cambridge Working Papers in Economics 0451, Faculty of Economics, University of Cambridge. [Downloadable!]
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  22. James Banks & Richard Blundell, 1993. "Household saving behaviour in the UK," IFS Working Papers W93/05, Institute for Fiscal Studies.
  23. Apps, Patricia F & Rees, Ray, 1997. "Collective Labor Supply and Household Production," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 178-90, February.
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  24. Apps, Patricia & Rees, Ray, 1999. "On the taxation of trade within and between households," Journal of Public Economics, Elsevier, vol. 73(2), pages 241-263, August. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Paul de Hek & Frank van Erp, 2009. "Analyzing labour supply of elderly people," CPB Documents 179, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  2. Mauro Mastrogiacomo & Nicole Voskuilen-Bosch, 2006. "Income incentives to labour participation and home production; the contribution of the tax credits in the Netherlands," CPB Discussion Papers 59, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
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