Time Preferences over the Life Cycle

52 Pages Posted: 5 Mar 2020 Last revised: 28 Oct 2020

See all articles by Wataru Kureishi

Wataru Kureishi

National Institute of Population & Social Security Research

Hannah Paule-Paludkiewicz

Deutsche Bundesbank

Hitoshi Tsujiyama

Goethe University Frankfurt

Midori Wakabayashi

Tohoku University

Date Written: October 2020

Abstract

We study whether and how time preferences change over the life cycle, exploiting representative long-term panel data. In order to disentangle age effects from cohort and period factors, we estimate individual fixed-effects models, substituting period effects with period specific determinants of time preferences. We find that discount rates linearly decrease over the life cycle. This pattern holds when adjusting for the curvature of the utility function. We show the quantitative importance of this finding by demonstrating that a canonical life-cycle model with decreasing discounting significantly improves its fit to consumption and asset data relative to the model with constant discounting.

Keywords: Time Preferences; Preference Stability; Age; Discount Rates

JEL Classification: D01, D12, D91, J10

Suggested Citation

Kureishi, Wataru and Paule-Paludkiewicz, Hannah and Tsujiyama, Hitoshi and Wakabayashi, Midori, Time Preferences over the Life Cycle (October 2020). SAFE Working Paper No. 267, February 2020, Available at SSRN: https://ssrn.com/abstract=3547301 or http://dx.doi.org/10.2139/ssrn.3547301

Wataru Kureishi

National Institute of Population & Social Security Research

Hibiya Kokusai Building 6th Floor
2-2-3 Uchisaiwai-cho
Tokyo 100-0011, Chiyoda-ku 100-0011
Japan

Hannah Paule-Paludkiewicz (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Hitoshi Tsujiyama

Goethe University Frankfurt ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Midori Wakabayashi

Tohoku University ( email )

27-1 Kawauchi
Aoba-ku, Sendai, Miyagi 980-8576
Japan

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