Neha Bairoliya
University of Southern California
Areendam Chanda
Louisiana State University
Jingyi Fang
University of Southern California
Working Paper
JEL Codes:
JEL code(s) not specified.
● Consumption Smoothing and Household Savings in India: Role of Demographics and Durables
download paper

Canonical life-cycle models predict that rational, fully forward-looking agents should perfectly smooth consumption over their lifetime. This prediction, while not supported by thedata, has been mostly tested for developed countries like the U.S. We use recently available,rich longitudinal data for a large sample of households to understand patterns of consumptionexpenditures, income growth and savings rates in India. Our empirical analysis has severalimportant findings. First, growth in total household consumption and income is comparable tothat of the U.S. However, unlike the U.S., Indian households exhibit no growth in non-durableconsumption expenditures after adjusting for family size. We document significant heterogeneity along various population sub-groups, but none of them exhibit growth close to U.S.households. Savings rates, measured as total income net of non-durable expenditures, on theother hand exhibits a strong hump over the life-cycle. We present evidence that the need tosave for lumpy investments such as housing, cars, tractors and cattle are key drivers of the highsavings rate growth over the life-cycle for Indian households.

  • No programs attached.

Use of CMIE Product implies acceptance of the usage agreement & privacy policy   ♦   FAQs   ♦  Diagnosis