Time Preferences Over the Life Cycle and Household Saving Puzzles

61 Pages Posted: 16 Mar 2021

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: 2021

Abstract

Most economic models assume that time preferences are stable over time, but the evidence on their long-term stability is lacking. We study whether and how time preferences change over the life cycle, exploiting representative long-term panel data. We provide new evidence that discount rates decrease with age and the decline is remarkably linear over the life cycle. Decreasing discounting helps a canonical life-cycle model to explain the household saving puzzles of undersaving when young and oversaving after retirement. Relative to the model with constant discounting, the model’s fit to consumption and asset data profiles improves by 40% and 30%, respectively.

JEL Classification: D150, D910, E210, J100

Suggested Citation

Kureishi, Wataru and Paule-Paludkiewicz, Hannah and Tsujiyama, Hitoshi and Wakabayashi, Midori, Time Preferences Over the Life Cycle and Household Saving Puzzles (2021). CESifo Working Paper No. 8935, Available at SSRN: https://ssrn.com/abstract=3805461 or http://dx.doi.org/10.2139/ssrn.3805461

Wataru Kureishi (Contact Author)

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

Deutsche Bundesbank ( email )

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

Hitoshi Tsujiyama

Goethe University Frankfurt ( email )

Grüneburgplatz 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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