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The Age-Wealth Profile and the Life-Cycle Hypothesis: A Cohort Analysis with a Time Series of Cross-Sections of Italian Households

Author

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  • Jappelli, Tullio

Abstract

Existing estimates of the age-wealth profile use panel or cross-sectional data. Panels with wealth data are rare, and plagued by measurement errors and sample attrition. Cross-sectional data require strong identifying assumptions. This paper represents the first attempt to use repeated cross-sectional data to test one of the central implications of the life-cycle theory, i.e. the extent to which the elderly run down accumulated assets. Using the 1984-93 Italian Survey of Household Income and Wealth, the paper shows that failing to control for the influence of cohort effects leads to substantial bias in the estimate of the age-wealth profile. Once cohort effects are taken into account, the results indicate that households accumulate assets until they are 70 years old; afterwards the estimated average annual rate of wealth decumulation is about 6%. A basic prediction of the life-cycle model, that the cohort effect increases from older to younger cohorts, is strongly supported by the data. The results also uncover considerable population heterogeneity: the rates of wealth decumulation are much lower for rich households and households headed by individuals with higher education.

Suggested Citation

  • Jappelli, Tullio, 1995. "The Age-Wealth Profile and the Life-Cycle Hypothesis: A Cohort Analysis with a Time Series of Cross-Sections of Italian Households," CEPR Discussion Papers 1251, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:1251
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    Citations

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    Cited by:

    1. Xiaofen Lin, 1997. "Saving Before and After Retirement: A Study of Canadian Couples, 1969-1992," Independence and Economic Security of the Older Population Research Papers 13, McMaster University.
    2. Alessie, R.J.M. & Kapteyn, A. & Klijn, F.E., 1997. "Mandatory pensions and personal savings in The Netherlands," Other publications TiSEM bc6fc489-fbc1-4579-8b7d-c, Tilburg University, School of Economics and Management.
    3. Kapteyn, Arie & Alessie, Rob & Lusardi, Annamaria, 2005. "Explaining the wealth holdings of different cohorts: Productivity growth and Social Security," European Economic Review, Elsevier, vol. 49(5), pages 1361-1391, July.
    4. Aldershof, T., 1999. "Female labor supply and housing decisions," Other publications TiSEM c62f938a-f79c-4da9-9c8e-9, Tilburg University, School of Economics and Management.
    5. Hansen, Hermann-Josef, 1996. "Der Einfluß der Zinsen auf den privaten Verbrauch in Deutschland," Discussion Paper Series 1: Economic Studies 1996,03, Deutsche Bundesbank.
    6. Hansen, Hermann-Josef, 1996. "The impact of interest rates on private consumption in Germany," Discussion Paper Series 1: Economic Studies 1996,03e, Deutsche Bundesbank.
    7. Christoph Schinke, 2012. "Inheritance in Germany 1911 to 2009: A Mortality Multiplier Approach," SOEPpapers on Multidisciplinary Panel Data Research 462, DIW Berlin, The German Socio-Economic Panel (SOEP).
    8. Marianna Brunetti, 2007. "Population Ageing, Household Portfolios and Financial Asset Returns: a Survey of the Literature," Politica economica, Società editrice il Mulino, issue 2, pages 171-208.

    More about this item

    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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