Deconstructing Life Cycle Expenditure


Aguiar,, and Hurst. “Deconstructing Life Cycle Expenditure”. Journal of Political Economy 121.3 (2013): , 121, 3, 437-492. Web.


In this paper we revisit two well-known facts regarding lifecycle expenditures. The first is the familiar ``hump'' shaped lifecycle profile of nondurable expenditures. The second is that cross-household consumption inequality increases steadily throughout the lifecycle. We document that the behavior of total nondurables masks surprising heterogeneity in the lifecycle profile of individual consumption sub-components. We provide evidence that the categories driving lifecycle consumption are either inputs into market work (clothing and transportation) or are amenable to home production (food). Using a quantitative model, we document that the disaggregated lifecycle consumption profiles imply a level of uninsurable permanent income risk that is similar to that implied by wage data and substantially lower than that implied by a model using only a composite consumption good.


Last updated on 12/12/2013