Life-cycle income hypothesis and demographic structure: A semi-nonparametric analysis using a panel of countries

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Abstract

In this paper, we attempt to determine whether the life-cycle income (LCI) hypothesis can explain movements in the national savings rate using the panel data of countries and the semi-nonparametric approach. While relating movements in the population density function to movements in the national savings rate, we are able to estimate the age response function with a high level of precision, and the estimated age response function is hump-shaped, which is generally consistent with the prediction from the LCI hypothesis. Running time-series regressions separately for individual countries, we also demonstrate that the estimated age response functions are consistent with the LCI hypothesis in a large proportion of countries, despite limited observations in a variety of countries. Finally, our time-series and cross-sectional analysis results imply that the LCI hypothesis is more likely to hold in a country wherein the growth rate of per capita GDP and the growth rate of population are high.

Original languageEnglish
Article number1350003
JournalSingapore Economic Review
Volume58
Issue number1
DOIs
Publication statusPublished - 2013 Mar

Keywords

  • Age distribution
  • Fourier flexible form
  • life-cycle income hypothesis
  • semi-nonparametric regression
  • series estimation

ASJC Scopus subject areas

  • Economics and Econometrics

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