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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

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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, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1251
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    JEL classification:

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

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