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Heterogeneity in time preference in older households

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  • Antoine Bozio

    ()
    (Institute for Fiscal Studies and a report)

  • Guy Laroque

    ()
    (Institute for Fiscal Studies and University College London)

  • Cormac O'Dea

    ()
    (Institute for Fiscal Studies)

Abstract

This paper suggests a method for estimating the distribution of discount rates using panel data on income and wealth. Using the English Longitudinal Survey of Ageing (ELSA), a representative sample of the English popularion over age 50, we general panel date on total consumption from the intertemporal budget constraint. The distribution of consumption levels is shown to closely match that estimated using the UK's household budget survey. Consumption transitions over time are then used to estimate the discount rates of households. We show that there is substantial heterogeneity in discounting behaviour and find that, among this older population, households with less education or numerical ability exhibit greater patience than those with higher education or numerical ability. The direction of this association is the opposite to that which has been found in experimental investigations of time preference.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W13/02.

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Date of creation: Jan 2013
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Handle: RePEc:ifs:ifsewp:13/02

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Related research

Keywords: Time preference; Discount rate; Heterogeneity; Consumption;

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  1. Richard Blundell & Luigi Pistaferri & Ian Preston, 2004. "Consumption inequality and partial insurance," IFS Working Papers W04/28, Institute for Fiscal Studies.
  2. James Banks & Cormac O'Dea & Zoë Oldfield, 2010. "Cognitive Function, Numeracy and Retirement Saving Trajectories," Economic Journal, Royal Economic Society, vol. 120(548), pages F381-F410, November.
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  13. Skinner, Jonathan, 1987. "A superior measure of consumption from the panel study of income dynamics," Economics Letters, Elsevier, vol. 23(2), pages 213-216.
  14. Matthew Weinzierl & Aleh Tsyvinski & Mikhail Golosov, 2010. "Preference Heterogeneity and Optimal Capital Income Taxation," 2010 Meeting Papers 748, Society for Economic Dynamics.
  15. Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
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