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

158 The Life-Cycle Hypothesis
–10 –5 0 5 10 15
20
25 30 35 40 45 50 55 60 65 70 75 80
Age of the household head
Discretionary saving
Change in discretionary wealth
Figure 5.10
Age profile of discretionary saving and of increment in discretionary wealth
The lines in the figure represent the age profiles of the increment in discretionary wealth (from figure
5.6) and of discretionary saving (from figure 5.12). Saving is expressed in thousand euro
with the Italian data or institutions. We then turn to evidence for other countries,
and for conceptual differences between saving and changes in wealth.
6.1 Sources Idiosyncratic to Italy
The Role of Smoothing
We began by considering the possibility that the finding of positive saving, even
at an advanced age, might be the result of distortions induced by smoothing the
life cycles of consumption and income by polynomials in age. On the basis of
figure 5.11, which shows a plot of the original (not smoothed) data of discretionary
saving by age and cohort, we promptly dismiss this hypothesis. Clearly
saving is humped, but even by age 80, though it is smaller than at any other age,
it is unmistakably positive. This is once again confirmed by the smoothed graph
of discretionary saving, exhibited in figure 5.12. Regression analysis—not
reported for brevity—indicates that income, wealth, homeownership, education,
self-employment, and family size are positively correlated with saving at
advanced age. But the most noteworthy feature of saving is that less than 20
percent of the aged households report negative saving, and that this proportion
does not increase with age, even conditioning for employment status, education,
homeownership, or other household characteristics.