Anticipation of Future Consumption, Excessive Savings, and Long-Run Growth

Johannes Schünemann (), Holger Strulik and Timo Trimborn
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Johannes Schünemann: University of Göttingen, Department of Economics, Postal: Platz der Göttinger Sieben 3, 37073 Göttingen, Germany
Authors registered in the RePEc Author Service: Johannes Schünemann

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: In this paper, we provide a new theory that explains how the anticipation of future consumption leads to excessive savings. We introduce utility from anticipatory consumption into an otherwise standard endogenous growth model and assume that individuals cannot commit to future consumption plans. We show that the associated time-inconsistent decisions lead individuals to save more of their income than planned, and that this behavior increases growth but decreases welfare. We then modify the model to account for time-inconsistent decisions due to hyperbolic discounting, which in and of themselves would result in individuals saving less of their income than planned. By combining the assumptions of anticipatory consumption and hyperbolic discounting, we show that the excessive savings outcome is preserved for the benchmark calibration of the model. We also show that an alternative parameterization of the model exists where hyperbolically discounting individuals stick to their original consumption plan even though there are no commitment devices.

Keywords: Anticipated Consumption; Time-Inconsistency; Over-Saving; Endogenous Growth; Discounting (search for similar items in EconPapers)
JEL-codes: D91 E21 O40 (search for similar items in EconPapers)
Pages: 21
Date: 2023-10-25
New Economics Papers: this item is included in nep-gro and nep-upt
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https://repec.econ.au.dk/repec/afn/wp/23/wp23_10.pdf (application/pdf)

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Working Paper: Anticipation of Future Consumption, Excessive Savings, and Long-Run Growth (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2023-10

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