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NATIONAL BUREAU OF ECONOMIC RESEARCH
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Jeanne Commault

Sciences Po - EUI
28 Rue des Saints-Pères
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France

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Institutional Affiliation: Sciences Po - EUI

NBER Working Papers and Publications

June 2020Why Does Consumption Fluctuate in Old Age and How Should the Government Insure It?
with Richard Blundell, Margherita Borella, Mariacristina De Nardi: w27348
In old age, consumption can fluctuate because of shocks to available resources and because health shocks affect utility from consumption. We find that even temporary drops in income and health are associated with drops in consumption and most of the effect of temporary drops in health on consumption stems from the reduction in the marginal utility from consumption that they generate. More precisely, after a health shock, richer households adjust their consumption of luxury goods because their utility of consuming them changes. Poorer households, instead, adjust both their necessary and luxury consumption because of changing resources and utility from consumption.
 
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