Abstract
The purpose of this paper is to test for two hypotheses about household consumption and saving behaviour, namely the ‘substitution hypothesis’, according to which changes in corporate retained earningshave an offsetting effect on household savingand the hypothesis that consumption and saving out of different types of income vary. Cross-country evidence from 13 OECD countries over the period 1963–80 lies very well in accordance with both of these hypotheses. Moreover, results are robust to alternative specifications of consumption function, to additional variables and to estimation methods.
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