Life Cycle, Individual Thrift, and the Wealth of Nations

Abstract

One theory of the determinants of individual and national thrift has come to be known as the life cycle hypothesis of saving. The state of the art on the eve of the formulation of the hypothesis some 30 years ago is reviewed. Then the theoretical foundations of the model in its original formulation and later amendment are set forth, calling attention to various implications, some distinctive to it and some counterintuitive. A number of crucial empirical tests, both at the individual and the aggregate level, are presented as well as some applications of the life cycle hypothesis of saving to current policy issues.