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

162 The Life-Cycle Hypothesis
Net transfers received
–10 –5 0 5 10 15
20
25 30 35 40 45 50 55 60 65 70 75 80
Age of the household head
Figure 5.13
Age profile of net inter vivos transfers received by the household
Average net transfers by the household are the difference between transfers received and transfers
given. The profile is obtained by regressing net transfers received on third order age polynomial using
the pooled 1998–2000 sample. Transfers are expressed in thousand euro
young, and are encouraged by the favorable taxation of gifts. If so, for the younger
generations the increase in assets should tend to exceed saving (by net gifts
received), while for the old it would tend to fall short (by the net gifts made).
This is precisely the nature of the puzzling discrepancy in figure 5.10.
Neither Ando nor Alessie provide direct evidence to support their hunch on the
issue. We have been able to carry out a rough test of the hypothesis on the basis
of information available in our survey. Unfortunately, the information in consistent
form is only available for the years 1998 and 2000. Using the response for
inter vivos transfers, we have computed the age profile of average net transfers
received by the household.
Because we have only two years’ worth of information, we cannot apply the
method used for other variables to disentangle the age effect from the cohort
effect. To bypass this issue, we simply compute average net transfer by age, and
then fit to these values a third degree polynomial in age, in this way smoothing
the result. The smoothed curve is reported in figure 5.13. Because figure 5.13 is
derived from cross-sectional means and is not adjusted for cohort effects, this
profile is not directly comparable with the life cycle of saving presented in figure
5.10. However, the path of net transfers is amazingly similar to the difference