Time preferences over the life cycle and household saving puzzles

Wataru Kureishi, Hannah Paule-Paludkiewicz, Hitoshi Tsujiyama, Midori Wakabayashi

Research output: Contribution to journalArticlepeer-review

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, using 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 discount rates help a canonical life-cycle model explain the saving puzzles of households 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.

Original languageEnglish
JournalJournal of Monetary Economics
DOIs
Publication statusAccepted/In press - 2021

Keywords

  • Discount rates
  • Household saving puzzles
  • Preference stability
  • Time preferences

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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