Household Consumption Response to Demographic Changes: An Analysis using a Demographic Model

In this paper, I use variations in the gestational ages of pregnant woman and the number of adults to estimate the effect of household composition and the timing of birth on household consumption. Based on the empirical results, I find a significant relationship between growth in the number of adults in the household and consumption growth. I also find a negative relationship between the number of adults and consumption per capita. Gestational age and it’s interaction with number of adult have a significant effect on labor income. Despite this finding, gestational age does not have a significant effect on labor related income and consumption. This linkage among consumption, household composition, and labor supply is a candidate explanation for the excess sensitivity of consumption growth to income which has been reported in the permanent income hypothesis/life-cycle literature. I argue that number of adults drives both consumption and labor supply thereby resulting in a relationship between consumption growth and income growth.

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Consumption response to demographic changes.

 Record created 2017-04-01, last modified 2018-01-23

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