Consumption and the permanent income of households

Abstract This study examines the household consumption utilizing data from the Israeli Consumer Expenditure Surveys and longitudinal administrative income records for 2004–2016. Three key findings challenge the predictions of the Permanent Income Hypothesis (PIH) and the Life-Cycle Hypothesis (LCH): First, households with higher income growth (2004–2016) exhibited lower consumption levels in the earlier period (2004–2007) and higher consumption in the later period (2013–2016). Second, households tend to consume a significant portion of transitory incomes immediately. Third, households without a pension plan show a marked decrease in consumption upon retirement.