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The life cycle hypothesis and consumption inequality

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  • Orazio P. Attanasio
  • Tullio Jappelli

Abstract

The life-cycle hypothesis predicts that the cross-sectional variance of the marginal utility of consumption is equal to its own lag plus a constant and a random component. Using fairly general preference specifications and some assumptions about the nature of the random component, we provide an explicit test of this hypothesis. Our approach, unlike Deaton and Paxson's (1994) analysis, circumvents the necessity to identify a pure age profile of the cross sectional variance of consumption and yields a well specified statistical test. This test is applied to data from the United States, the United Kingdom and Italy. The results do not reject the restrictions implied by the theoretical model.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W97/17.

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Date of creation: Sep 2000
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Handle: RePEc:ifs:ifsewp:97/17

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Cited by:
  1. Giorgio Primiceri & Thijs van Rens, 2002. "Inequality over the business cycle: Estimating income risk using micro-data on consumption," Economics Working Papers 943, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2004.
  2. John Creedy & Catherine Sleeman, 2004. "Adult Equivalence Scales, Inequality and Poverty in New Zealand," Treasury Working Paper Series 04/21, New Zealand Treasury.
  3. John Creedy & Catherine Sleeman, 2005. "Adult Equivalence Scales, Inequality and Poverty," Department of Economics - Working Papers Series 938, The University of Melbourne.

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