| Consumption and income have both grown rapidly in Taiwan over the past forty years, with younger birth cohorts experiencing faster growth. The long upward trend in consumption presents a strong challenge to the consumption smoothing predictions of the Permanent Income Hypothesis. We investigate the extent to which consumption theory can account for this trend in an environment where a large majority of households have high savings rates. Household survey data from 1976-96 are used to estimate dynamic pseudo-panel models with inter-cohort heterogeneity. We evaluate the impacts on consumption of migration, mortality, household composition, liquidity constraints, unanticipated aggregate shocks, hyperbolic discounting, habit formation and precautionary saving.... |
