Why Does Consumption Fluctuate in Old Age and How Should the Government Insure it?

54 Pages Posted: 15 Jun 2020

See all articles by Richard W. Blundell

Richard W. Blundell

UCL; IFS; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Margherita Borella

University of Torino - Dipartimento di scienze economico-sociali e matematico-statistiche; CeRP - Collegio Carlo Alberto

Jeanne Commault

affiliation not provided to SSRN

Mariacristina De Nardi

University College London, Economics Dpt.; Federal Reserve Bank of Chicago; National Bureau of Economic Research (NBER) - Public Economics

Date Written: June 2020

Abstract

In old age, consumption can fluctuate because of shocks to available resources and because health shocks affect utility from consumption. We find that even temporary drops in income and health are associated with drops in consumption and most of the effect of temporary drops in health on consumption stems from the reduction in the marginal utility from consumption that they generate. More precisely, after a health shock, richer households adjust their consumption of luxury goods because their utility of consuming them changes. Poorer households, instead, adjust both their necessary and luxury consumption because of changing resources and utility from consumption.

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Suggested Citation

Blundell, Richard W. and Borella, Margherita and Commault, Jeanne and De Nardi, Mariacristina, Why Does Consumption Fluctuate in Old Age and How Should the Government Insure it? (June 2020). NBER Working Paper No. w27348, Available at SSRN: https://ssrn.com/abstract=3626849

Richard W. Blundell (Contact Author)

UCL ( email )

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IZA Institute of Labor Economics

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Centre for Economic Policy Research (CEPR)

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Margherita Borella

University of Torino - Dipartimento di scienze economico-sociali e matematico-statistiche ( email )

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Torino, 13820-4020
Italy

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CeRP - Collegio Carlo Alberto

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Jeanne Commault

affiliation not provided to SSRN

No Address Available

Mariacristina De Nardi

University College London, Economics Dpt. ( email )

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London WC1E 6BT, WC1E 6BT
United Kingdom

Federal Reserve Bank of Chicago ( email )

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