Consumer Demand and the Life-Cycle Allocation of Household Expenditures

The purpose of this paper is to estimate the parameters of household preferences that determine the allocation of goods within the period and over the life cycle, using micro data. In doing so we are able to identify important effects of demographics, labour market status and other household characteristics on the intertemporal allocation of expenditure. We test the validity of the life-cycle model using excess sensitivity tests and find that controlling for demographics and labour market status variables can largely explain the excess sensitivity of consumption to anticipated changes in income.