Philippine consumption dynamics: an empirical study of the life-cycle profiles of household consumption and its broad components
Date
2013-03
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Abstract
This paper examines the validity of the life-cycle hypothesis in the Philippine context primarily through a decomposition analysis of the age and cohort effects on consumption and its broad components. To control for the changes in household composition, it likewise employs the use of square root equivalence scale. Although hardly conclusive, findings reject many predictions of the basic life-cycle hypothesis and yet at the same time show sparse traces of patterns adhering to the said hypothesis. From these findings, the paper therefore questions the altogether rejection of the life-cycle hypothesis on the basis of Keynesian conjecture that consumption simply tracks income in the country. Henceforth the study calls for more robust research work on the topic, suggesting the use of conditioning variables and alternative equivalence scales in the analysis to account for the demographic effects. With regard to government policies, this study asserts that temporary income taxes might not be effective in stimulating or reducing demand in the economy. Steps to ease liquidity constraints and to encourage better handling of expenditures and savings must likewise be considered to be put into action.
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Keywords
Life-cycle Hypothesis, Consumption, Income, Savings Rate, Square Root Equivalence, Synthetic Cohort, Philippines