Why Does Consumption Fluctuate in Old Age and How Should the Government Insure it?

Margherita Borella and Mariacristina De Nardi

No 40, Opportunity and Inclusive Growth Institute Working Papers from Federal Reserve Bank of Minneapolis

Abstract: In old age, consumption can fluctuate because of shocks to available resources and because health shocks affect utility from consumption. We find that even temporary drops in income and health are associated with drops in consumption and most of the effect of temporary drops in health on consumption stems from the reduction in the marginal utility from consumption that they generate. More precisely, after a health shock, richer households adjust their consumption of luxury goods because their utility of consuming them changes. Poorer households, instead, adjust both their necessary and luxury consumption because of changing resources and utility from consumption.

JEL-codes: D10 D11 D12 D14 E20 E21 H20 H31 H51 (search for similar items in EconPapers)
Pages: 57
Date: 2020-10-23
New Economics Papers: this item is included in nep-age, nep-dem, nep-hea, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmoi:89237

DOI: 10.21034/iwp.40

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