Aksoy, Yunus Basso, Henrique S. St. Aubyn, Carolyn
CESifo Working Paper No. 8162
Center for Economic Studies and ifo Institute (CESifo), Munich
We document systematic and significant time variation in US lifecycle non-durable consumption profiles. Consumption profiles have consistently become flatter: differences in consumption across generations have decreased. Pooling data across different periods to identify lifecycle profiles masks relevant time variations and may artificially generate hump-shaped consumption age profiles. The main driver behind lifecycle consumption variations are lifecycle income changes, which display similar flattening. Employing a lifecycle model we show changes in income are sufficient to match the movements in consumption. The contributions of credit, housing and interest rates changes are quantitatively small.
age profile of consumption age profile of income consumption heterogeneity time variation pooling