New Tests of the Life Cycle and Tax Discounting Hypotheses

We first test a version of the permanent income consumption function recently suggested by Barro. The results support the theory except that consumption expenditures show sensitivity to transitory income. Next we use the consumption model to test the tax discounting hypothesis, which is strongly sup...

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Main Authors: Mariano, Roberto S., Seater, J.
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Language:English
Published: Institutional Knowledge at Singapore Management University 1985
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Online Access:https://ink.library.smu.edu.sg/soe_research/270
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spelling sg-smu-ink.soe_research-12692010-09-23T05:48:03Z New Tests of the Life Cycle and Tax Discounting Hypotheses Mariano, Roberto S. Seater, J. We first test a version of the permanent income consumption function recently suggested by Barro. The results support the theory except that consumption expenditures show sensitivity to transitory income. Next we use the consumption model to test the tax discounting hypothesis, which is strongly supported. This support for tax discounting disagrees with results from some earlier studies using more traditional specifications of the consumption function. However, we show that when certain obviously inadequate estimation procedures are corrected, the traditional models also support tax discounting. This uniform support for tax discounting suggests that the sensitivity of consumption to transitory income is not due to liquidity constraints. 1985-01-01T08:00:00Z text https://ink.library.smu.edu.sg/soe_research/270 info:doi/10.1016/0304-3932(85)90064-9 Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Economics
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Economics
spellingShingle Economics
Mariano, Roberto S.
Seater, J.
New Tests of the Life Cycle and Tax Discounting Hypotheses
description We first test a version of the permanent income consumption function recently suggested by Barro. The results support the theory except that consumption expenditures show sensitivity to transitory income. Next we use the consumption model to test the tax discounting hypothesis, which is strongly supported. This support for tax discounting disagrees with results from some earlier studies using more traditional specifications of the consumption function. However, we show that when certain obviously inadequate estimation procedures are corrected, the traditional models also support tax discounting. This uniform support for tax discounting suggests that the sensitivity of consumption to transitory income is not due to liquidity constraints.
format text
author Mariano, Roberto S.
Seater, J.
author_facet Mariano, Roberto S.
Seater, J.
author_sort Mariano, Roberto S.
title New Tests of the Life Cycle and Tax Discounting Hypotheses
title_short New Tests of the Life Cycle and Tax Discounting Hypotheses
title_full New Tests of the Life Cycle and Tax Discounting Hypotheses
title_fullStr New Tests of the Life Cycle and Tax Discounting Hypotheses
title_full_unstemmed New Tests of the Life Cycle and Tax Discounting Hypotheses
title_sort new tests of the life cycle and tax discounting hypotheses
publisher Institutional Knowledge at Singapore Management University
publishDate 1985
url https://ink.library.smu.edu.sg/soe_research/270
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