The life-cycle hypothesis, fiscal policy and social security
In the early 1950s Modigliani, with Brumberg and Ando, formulated the life-cycletheory of consumption and savings that enjoyed a huge and undisputed success. But, since the early 1980s, the life-cycle theory has increasingly come under attack. One reason is the existence of an important inter-generational transmission of wealth, to be imputed to motives that are exogenous to the life-cycle model. The second reason is the growing evidence that the rich continue to save more than the less fortunate, as Keynes in fact maintained. The third reason is that there is growing evidence that young families in their twenties and thirties save a positive and increasing proportion of their income, which is in sharp contrast with the original version of the life-cycletheory. Finally, a number of empirical works have found that pensioners set aside a high proportion of their income. This requires a rethinking of the life-cycle approach.
Volume (Year): 58 (2005)
Issue (Month): 233-234 ()
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3451399, Harvard University Department of Economics.
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- Modigliani, Franco & Sterling, Arlie, 1986. "Government Debt, Government Spending and Private Sector Behavior: Comment," American Economic Review, American Economic Association, vol. 76(5), pages 1168-79, December.
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- Tullio Jappelli & Franco Modigliani, 1998. "The Age-Saving Profile and the Life-Cycle Hypothesis," CSEF Working Papers 09, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
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