Consumption of Spanish households: evidence from cohort data

In this paper, empirical evidence on elasticity of intertemporal substituti on for Spanish household consumption is shown. Several recent studies have rejected the lifecycle-permanent income hypothesis using aggregate time ser ies. The rejection of the theory has often been blamed on the restrictive a ssumptions adopted in order to test the hypothesis. This article tests the household behaviour using cohort data from the Spanish Encuesta Continua de Presupuestos Familiares (Continuous Survey of Household Budgets). This sou rce allows us to relax some of the most restrictive assumptions by using da ta with a certain degree of disaggregation. Evidence of consumer behaviour following the theory is found. Indirect evidence of liquidity constraints i s also found and an alternative discount rate designed to be in better acco rdance with the theoretical foundations of the model is proposed.