Life-cycle Consumption, And Urban Residents

Life Cycle-Permanent Income Hypothesis is the most basic theoretical model in the study of consumer behavior in economics, and later developed uncertainty consumption theory such as precautionary savings hypothesis and liquidity constraint hypothesis, have not changed this framework fundamentally. A corollary from the hypothesis is that, people's marginal propensity to consume in earlier life cycle is high, in the following life cycle is relatively low, and in the late life cycle is high again. While empirical research at the household level about whether China's urban residents' consumption behavior is consistent with this hypothesis or not is scarce, this paper investigates the monthly data from January 2005 to December 2006 of Urban Household Survey (UHS) by Shandong Corps of the National Bureau of Statistics of China (NBSC), through estimating panel data models we give an econometric test of the corollary mentioned above. Main conclusions in this paper are as follows:First, China's urban residents' consumption behavior is not entirely in line with the expectation of Life Cycle-Permanent Income Hypothesis, namely that urban residents in their earlier life cycle have a higher propensity to consume, in the subsequent period have a lower propensity to consume, but the propensity to consume of urban residents in the pre-retirement life cycle will become larger, while urban residents in the post-retirement life cycle have a lower marginal propensity to consume nondurable goods not including health and education expenditure and a higher marginal propensity to consume nondurable goods including health and education expenditure.Second, total income's marginal propensity to consume of China's urban residents at different life-cycles shows the same changes form with disposable income, so not entirely supporting the expectation of Life Cycle-Permanent Income Hypothesis, while wage income's marginal propensity to consume of China's urban residents at different life-cycles have a different changes form, that is, urban residents in the earlier life cycle have a higher wage income's marginal propensity to consume, and wage income's marginal propensity to consume of urban residents in the next life cycles all are relatively low .Third, medical expenditure has a significant negative impact on the consumption of nondurable goods not including health and education expenditure of urban residents in the pre-and-post retirement life cycle (50-59 years old and over 60 years of age), while there is not such a significant impact as to urban residents in the earlier and medium life. On the other hand, education spending has no significant impact on the consumption of nondurable goods not including health and education expenditure of urban residents in the earlier (29 years of age) and pre-and-post retirement life cycle, but the increase in education spending will significantly "crowd out" or inhibit the consumption of nondurable goods not including health and education expenditure of urban residents in the life cycle of 30-39 years old, on the contrary the increase in education spending will promote the consumption of nondurable goods not including health and education expenditure of urban residents in the life cycle of 40-49 years old.