The life-cycle hypothesis, fiscal policy and social security
DOI:
https://doi.org/10.13133/2037-3643/9853Keywords:
Consumption, Fiscal Policy, Life Cycle, Policy, Saving, Social Security, WealthAbstract
The paper reviews some of the most important results of the Life Cycle Hypothesis (LCH) for understanding individual and aggregate saving behaviour. It then turns to the implications for fiscal policy and social security, highlighting Modigliani’s seminal contributions. Over time competing theories have emerged, and some empirical findings are difficult to reconcile with LCH; chiefly aspects of inertia, myopia, and irrational behaviour documented by the recent behavioural literature. But the LCH is still the benchmark model to think about individual saving decisions, the aggregate evidence and policy issues.
JEL Codes: D91, E21, E62, H55
References
ANDO, A. and F. MODIGLIANI (1957), "Tests of the life-cycle hypothesis of savings: comments and suggestions", Bulletin of the Oxford Institute of Statistics, vol. 19, pp. 99-124.
BARRO, R. (1974), "Are government bonds net wealth?", Journal of Political Economy, vol. 82, no.6, pp. 1095-117.
DEATON, A. (1992), Understanding Consumption, Oxford University Press, Oxford.
DEATON, A. and C. PAXSON (1994), "Saving, aging and growth in Taiwan", in D. Wise ed., Studies in the Economics of Aging, University of Chicago Press, Chicago, pp. 331-57.
DRÈZE, J. and F. MODIGLIANI (1972), "Consumption decisions under uncertainty", Journal of Economic Theory, vol. 5, pp. 308-36.
FELDSTEIN, M. (1974), "Social security, induced retirement and aggregate accumulation", Journal of Political Economy, vol. 82, pp. 905-26.
FELDSTEIN, M. (1976), "Social security and saving: the extended lyfe cycle theory", The American Economic Review, vol. 66, pp. 77-86.
FISHER, I. (1930), The Theory of Interest, Macmillan, New York.
JAPPELLI, T. and F. MODIGLIANI (2005), "The age saving profile and the life-cycle hypothesis", in The Collected Papers of Franco Modigliani, vol. 6, MIT Press, London, pp. 141-72.
KOTLIKOFF, L. and L. SUMMERS (1981), "The role of intergenerational transfers and capital accumulation", Journal of Political Economy, vol. 89, no. 4, pp. 706-32.
KUZNETS, S. (1962), "Quantitative aspects of the economic growth of nations. VII: The share and structure of consumption", Economic Development and Cultural Change, vol. 10, part 2, pp. 1-92.
MODIGLIANI, F. (1961), "Long-run implications of alternative fiscal policies and the burden of the national debt", Economic Journal, vol. 71, pp. 730-55.
MODIGLIANI, F. (1966), "The life-cycle hypothesis of saving, the demand for wealth and the supply of capital", Social Research, vol. 33, pp. 160-217.
MODIGLIANI, F. (1986), "Life-cycle, individual thrift, and the wealth of nations", American Economic Review, vol. 76, no. 3, pp. 297-313.
MODIGLIANI, F. (1986), The Debate over Stabilization Policies, Cambridge University Press, Cambridge.
MODIGLIANI, F. (1988), "The role of intergenerational transfers and life cycle saving in the accumulation of wealth", Journal of Economic Perspectives, vol. 2, pp. 15-40.
MODIGLIANI, F. (1990), "Recent developments in saving rates: a life cycle perspective", Frisch Lecture delivered at the 6th World Congress of the Econometric Society, September, Barcelona.
MODIGLIANI, F. and R. BRUMBERG (1954), "Utility analysis and the consumption function: an interpretation of cross-section data", in K. Kurihara ed., Post Keynesian Economics, Rutgers University Press, New Brunswick, pp. 388-436.
MODIGLIANI, F. and R. BRUMBERG (1979), "Utility analysis and aggregate consumption function: an attempt at integration", in A. Abel ed., Collected Papers of Franco Modigliani, vol. 2, MIT Press, Cambridge, pp. 128-97.
MODIGLIANI, F. and T. JAPPELLI (1987), "Fiscal policy and saving in Italy since 1860", in M.J. Boskin, J.S. Flemming and S. Gorini eds, Private Saving and Public Debt, Basil Blackwell, Oxford, pp. 126-70.
MODIGLIANI, F. and T. JAPPELLI (1990), "Why has the Italian national saving rate declined?", in S. Biasco, A. Roncaglia, M. Salvati eds, Market and Institutions in Economic Development, Macmillan, London, pp. 117-38.
MODIGLIANI, F. and A. STERLING (1983), "Determinants of private saving with special reference to the role of social security – cross country tests", in F. Modigliani and R. Hemming eds, The Determinants of National Saving and Wealth, Macmillan, London, pp. 24-55.
MODIGLIANI, F. and A. STERLING (1986), "Government debt, government spending and private sector behaviour: comment", American Economic Review, vol. 76, no. 5, pp. 1168-79.
MODIGLIANI, F., T. JAPPELLI and M. PAGANO (1985), "The impact of fiscal policy and inflation on national saving: the Italian case", Banca Nazionale del Lavoro Quarterly Review, no. 153, pp. 91-126.
MUNNELL, A. (1974), The Effect of Social Security on Personal Saving, Ballinger, Cambridge.
POTERBA, J. (1994), International Comparison of Personal Saving, The University of Chicago Press, Chicago.
RICCI, U. (1926), "L'offerta del risparmio", Giornale degli Economisti e Annali di Economia, vol. 57, febbraio, pp. 73-101.
RICCI, U. (1926), "Ancora sull'offerta del risparmio", Giornale degli Economisti e Annali di Economia, vol. 57, marzo, pp. 117-47.
ROSSI, N. and I. VISCO (1995), "National saving and social security in Italy", Ricerche Economiche, vol. 49, pp. 329-56.
Downloads
Published
How to Cite
Issue
Section
License
