Time preferences over the life cycle and household saving puzzles

Wataru Kureishi, Hannah Paule-Paludkiewicz, Hitoshi Tsujiyama and Midori Wakabayashi

Journal of Monetary Economics, 2021, vol. 124, issue C, 123-139

Abstract: Most economic models assume that time preferences are stable over time, but the evidence on their long-term stability is lacking. We study whether and how time preferences change over the life cycle, using representative long-term panel data. We provide new evidence that discount rates decrease with age and the decline is remarkably linear over the life cycle. Decreasing discount rates help a canonical life-cycle model explain the saving puzzles of households undersaving when young and oversaving after retirement. Relative to the model with constant discounting, the model’s fit to consumption and asset data profiles improves by 40% and 30%, respectively.

Keywords: Time preferences; Preference stability; Discount rates; Household saving puzzles (search for similar items in EconPapers)
JEL-codes: D15 D91 E21 J10 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Time Preferences over the Life Cycle and Household Saving Puzzles (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:124:y:2021:i:c:p:123-139

DOI: 10.1016/j.jmoneco.2021.10.004

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