"Life Cycle" Hypothesis of Saving: Aggregate ... - Arabictrader.com

The Age Saving Profile 155
0 5 10 15 20 25
20
25 30 35 40 45 50 55 60 65 70 75 80
Age of the household head
Conventional disposable income
Consumption
Eamed income
Figure 5.7
Age profile of consumption and income
The age dummies are estimated from regressions of median income and consumption on age
dummies, cohort dummies, and restricted time dummies. Income and consumption are expressed in
thousand euro
In figure 5.7, we plot the age profile of consumption and of the two income
measures. Each profile is obtained using the microeconomic data in the same
fashion used for wealth. Median consumption and income in each age/year/cohort
cell are regressed on a full set of age dummies, cohort dummies and restricted
time dummies. The smoothed coefficients of the age dummies are then plotted in
figure 5.7.
As hypothesized by LCH, consumption is remarkably flat. The moderate hump
appears to reflect a similar hump in the age profile of family size reported in
figure 5.8, which mirrors the entrance and exit of children (and one spouse) from
the households. Since it is not essential to our basic argument, we forego any
adjustment for family size.
In figure 5.7, the profile of earned income, in contrast to that of consumption,
is very hump-shaped. It peaks around age 50, which in some respects is surprisingly
early. This peak may reflect the very young age at which some pensions
have been awarded in Italy (so called baby pensions). It declines rapidly after age
55, a reflection of the increasing number of retired individuals belonging to older
age groups. Retirement earned income consists mainly of capital income (the
return to discretionary wealth), much of which is accounted for by imputed rents
on owner occupied housing.