The Life Cycle Model of Consumption and Saving
Martin Browning and
Social and Economic Dimensions of an Aging Population Research Papers from McMaster University
The life-cycle model is the standard framework which economists use to think about the intertemporal allocation of time, money and effort. The model suggests that households should `smooth' expenditures. One of the strengths of the model is that it provides a single framework which integrates allocation at many different frequencies. Accordingly, we provide an assesment of the life- cycle model by re-examining the empirical evidence for smoothing (1) within the year, (2)at year-to-year or business cycle frequencies, (3) over the working life, and (4) across the stages of life, such as working into retirement. We conclude that although unresolved challenges remain, the model has had many more successes than failures. We provide some calculations that show that where deviations from the model's predictions have been detected, they imply very small welfare costs for households. Moreover, economists are really just beginning systematic application of general theory models to microdata. Thus it is much too early to abandon the life-cycle model.
Keywords: life cycle model; consumption; saving (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28) Track citations by RSS feed
Downloads: (external link)
Journal Article: The Life-Cycle Model of Consumption and Saving (2001)
Working Paper: The life-cycle model of consumption and saving (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:mcm:sedapp:28
Access Statistics for this paper
More papers in Social and Economic Dimensions of an Aging Population Research Papers from McMaster University Contact information at EDIRC.
Bibliographic data for series maintained by ().