Publication Type

Journal Article

Version

publishedVersion

Publication Date

1-2015

Abstract

The outbreak of the financial crisis in 2008 witnessed a significant contraction in US consumption spending, as households began deleveraging following a period marked by historically high levels of household borrowing. These events call into question the canonical life-cycle theory of consumption, with its benign view of debt as a neutral instrument of optimal intertemporal expenditure smoothing. This paper draws attention to an alternative, post-Keynesian account of consumption spending in which current income, household borrowing and household indebtedness all affect current consumption. Central to the analysis is an empirical investigation of US consumption spending since the 1950s. The results of this inquiry cast doubt on the life-cycle hypothesis, but are congruent with the alternative, post-Keynesian account of consumption.

Keywords

Consumption, Household borrowing, Household debt, Life-cycle hypothesis, Relative income hypothesis

Discipline

Behavioral Economics | Macroeconomics

Research Areas

Macroeconomics

Publication

Cambridge Journal of Economics

Volume

39

Issue

1

First Page

93

Last Page

112

ISSN

0309-166X

Identifier

10.1093/cje/beu029

Publisher

Oxford University Press

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1093/cje/beu029

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