WEALTH-VARYING INTERTEMPORAL ELASTICITIES OF SUBSTITUTION - EVIDENCE FROM PANEL AND AGGREGATE DATA

This paper constructs and estimates a model of consumer preferences in which the intertemporal elasticity of substitution (IES) of consumpti on expenditure rises with the revel of wealth, The purpose of this pap er is to measure the effect that systematic variation in the IES of po or and rich consumers has on the IES of aggregate consumption expendit ure. We find economically significant differences in the IES of poor a nd rich consumers in Indian panel data on the consumption of individua l households. We also find economically significant differences in the IES measured in aggregate time series data for the U.S. and India.