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The life cycle hypothesis and consumption inequality

Author

Listed:
  • Orazio Attanasio

    () (Institute for Fiscal Studies and University College London)

  • Tullio Jappelli

    (Institute for Fiscal Studies)

Abstract

The life-cycle hypothesis predicts that the cross-sectional variance of the marginal utility of consumption is equal to its own lag plus a constant and a random component. Using fairly general preference specifications and some assumptions about the nature of the random component, we provide an explicit test of this hypothesis. Our approach, unlike Deaton and Paxson's (1994) analysis, circumvents the necessity to identify a pure age profile of the cross sectional variance of consumption and yields a well specified statistical test. This test is applied to data from the United States, the United Kingdom and Italy. The results do not reject the restrictions implied by the theoretical model.

Suggested Citation

  • Orazio Attanasio & Tullio Jappelli, 1997. "The life cycle hypothesis and consumption inequality," IFS Working Papers W97/17, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:97/17
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    Cited by:

    1. John Creedy & Catherine Sleeman, 2004. "Adult Equivalence Scales, Inequality and Poverty in New Zealand," Treasury Working Paper Series 04/21, New Zealand Treasury.
    2. Giorgio Primiceri & Thijs van Rens, 2002. "Inequality over the Business Cycle: Estimating Income Risk using Micro-Data on Consumption," Macroeconomics 0212003, EconWPA.
    3. John Creedy & Cath Sleeman, 2005. "Adult equivalence scales, inequality and poverty," New Zealand Economic Papers, Taylor & Francis Journals, vol. 39(1), pages 51-81.

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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