TY  - JOUR
AU  - Carroll,Chris
AU  - Summers,Lawrence H.
TI  - Consumption Growth Parallels Income Growth: Some New Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3090
PY  - 1989
Y2  - September 1989
UR  - http://www.nber.org/papers/w3090
L1  - http://www.nber.org/papers/w3090.pdf
N1  - Author contact info:
Christopher D. Carroll
Department of Economics
Mergenthaler 440
Johns Hopkins University
Baltimore, MD 21218
Tel: 410/516-7602
Fax: 410/516-7600
E-Mail: ccarroll@jhu.edu

Lawrence H. Summers
Harvard Kennedy School of Government
79 JFK Street
Cambridge, MA 02138
Tel: 617/495-9322
Fax: 617/495-0436
E-Mail: lhs@harvard.edu
M1  - published as Christopher D. Carroll, Lawrence H. Summers. "Consumption Growth Parallels Income Growth: Some New Evidence," in B. Douglas Bernheim and John B. Shoven, editors, "National Saving and Economic Performance" University of Chicago Press (1991)

AB  - This paper argues that the versions of both permanent income and life-cycle theories which have recently become fashionable are inconsistent with the grossest features of cross-country and cross-section data on consumption and income. There is clear evidence that consumption and income growth are much more closely linked than would be predicted by these theories. it appears that consumption smoothing takes place over periods of several years not several decades. These results confirm Milton Friedman's (1957) initial view that: "The permanent income component is not to be regarded as expected lifetime earnings... It is to be interpreted as the mean income at any age regarded as permanent by the consumer unit in question, which in turn depends on its horizon and foresightedness." They call into question the usefulness of standard representative Consumer approaches to the analysis of saving behavior. And they call for increased emphasis on liquidity constraints and short run precautionary saving as determinants of consumption behavior.
ER  -