The Age-Saving Profile and the Life-Cycle Hypothesis
AbstractThe life-cycle hypothesis posits that saving is positive for young households and negative for the retired, so that wealth should be hump-shaped. Yet, if one looks at the microeconomic evidence on saving by age, dissaving by the elderly is limited or absent. But the saving measures usually computed on cross-sections or panel data are based on a concept of income that does not take into account the presence of pension arrangements. In fact, disposable income treats pension contributions as taxes, and pension benefits as transfers. But since contributions entitle the payer to receive a pension after retirement, contributions should be regarded as life-cycle saving and hence included back to income. Similarly, pension benefits accruing to the retired do not represent income produced, but a drawing from the pension wealth accumulated up to retirement. We use Italian repeated cross-sectional data from 1984 to 1995 to show the importance of this adjustment for the evaluation of the saving behavior of the elderly.
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 09.
Date of creation: 01 Nov 1998
Date of revision:
Publication status: Published in The Collected Papers of Franco Modigliani - Vol. 6. Cambridge: The MIT Press, 2005, 141-72. Published also in Long Run Growth and Short Run Stabilization: Essays in Memory of Albert Ando, edited by Lawrence Klein. Cheltenham, U.K.: Edward Elgar, April 2006
Saving; Wealth accumulation; Life-Cycle Hypothesis;
Find related papers by JEL classification:
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-12-28 (All new papers)
- NEP-DGE-1998-12-28 (Dynamic General Equilibrium)
- NEP-MIC-1998-12-28 (Microeconomics)
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