A leisurely reading of the life-cycle consumption data

Abstract

A puzzle in consumption theory is the observation of a hump in age–consumption profiles. This paper studies a general equilibrium life-cycle economy with capital in which households include both consumption and leisure in their period utility function. A calibrated version of the model shows that a significant hump in life-cycle consumption is a feature of the equilibrium. Thus inclusion of leisure in household preferences may provide part of the explanation of observed life-cycle consumption humps.