THE RESPONSE OF CONSUMPTION TO INCOME - A CROSS-COUNTRY INVESTIGATION

In previous work we have argued that aggregate, post-war. United States data on consumption and income are well described by a model in which a fraction of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be about 50%, indicating a substantial departure from the permanent income hypothesis. In this paper we ask whether the same model fits quarterly data from the United Kingdom over the period 1957-1988 and from Canada, France, Japan, and Sweden over the period 1972-1988. We also explore several generalizations of the basic model. © 1991.