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Discount Rate Heterogeneity Among Older Households: A Puzzle?

  • Antoine Bozio

    ()

    (Institute for Fiscal Studies and Paris School of Economics)

  • Guy Laroque

    ()

    (Institute for Fiscal Studies and University College London)

  • Cormac O'Dea

    ()

    (Institute for Fiscal Studies and Institute for Fiscal Studies)

We put forward a method for estimating individual discount rates using field data on wealth and income. We build consumption from these data using the budget constraint. At each date, consumption transitions yield discount rates by groups of households. We apply this technique to a representative sample of older English households. We show, unsurprisingly, that there is substantial heterogeneity in discounting in that population. We fi nd a distribution of discount rates similar in shape to those previously estimated using field data, though with much lower mean values than the ones found using experimental data. But surprisingly we find that, among this older population, patience is positively correlated with education and numerical ability. This is puzzling as it goes against the negative correlation found in experiments and some fi eld investigations of time preference for younger populations. We discuss potential explanations for this result.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W13/02.

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Date of creation: Jan 2013
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Handle: RePEc:ifs:ifsewp:13/02
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  1. Skinner, Jonathan, 1987. "A superior measure of consumption from the panel study of income dynamics," Economics Letters, Elsevier, vol. 23(2), pages 213-216.
  2. Samwick, Andrew A., 1998. "Discount rate heterogeneity and social security reform," Journal of Development Economics, Elsevier, vol. 57(1), pages 117-146, October.
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  5. Golosov, Mikhail & Troshkin, Maxim & Tsyvinski, Aleh & Weinzierl, Matthew, 2013. "Preference heterogeneity and optimal capital income taxation," Journal of Public Economics, Elsevier, vol. 97(C), pages 160-175.
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  15. Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
  16. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
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