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Smooth Consumption and Life Cycle Consumption Theory: Evidence from the United States and Implications for China

Xun Ge, Ping Zhang (), Jian Li and Yapeng Zhao
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Xun Ge: Sanda University
Ping Zhang: Fudan University
Jian Li: Independent Researcher
Yapeng Zhao: Fudan University

International Advances in Economic Research, 2025, vol. 31, issue 3, No 4, 169-196

Abstract: Abstract This paper explores the path to achieve sustainable economic growth through the lens of Life cycle consumption theory, emphasizing the importance of smooth consumption patterns. The notion is introduced into the short-term consumption function that the marginal propensity to consume is not constant, acknowledging the variability among individuals. Meanwhile, the research considers the acceleration effect of changes in expected income on the marginal propensity to consume, thereby addressing a limitation of classical economic theory, which inadequately accounts for the influence of economic cycles on consumption behavior. The research analyzes the characteristics of autonomous consumption and wealth stock, as well as the role of smooth consumption. It identifies specific conditions for the constancy of the long-term propensity to consume, offering a framework for reconciling short-term and long-term consumption functions. The empirical analysis utilizes mixed cross-sectional data from the Consumer Expenditure Survey of the United States Bureau of Labor Statistics and the Surveys of Consumers from the University of Michigan, covering the years 2012 to 2018, and the results are supportive. The study concludes with recommendations for enhancing top-level design in pension planning and leveraging institutional advantages to elevate income expectations, thereby promoting the implementation of smooth consumption strategies.

Keywords: Smooth consumption; Life cycle theory; Income expectation; Pension planning (search for similar items in EconPapers)
JEL-codes: D91 E21 H24 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s11294-025-09934-4

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