Summary.
We present a simple neoclassical life-cycle model in continuous time, in which the effects of endogenous labor supply, uncertain lifetime, and family composition on consumption and income profiles are jointly analyzed. Due to a parsimonious specification, analytical solutions for consumption growth are available for constant intertemporal elasticity of substitution preferences. Without relying on borrowing constraints, the model can generate a hump in the consumption profile, and a comovement of consumption and income during working life.
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Received: June 9, 1999; revised version: October 4, 1999
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Bütler, M. Neoclassical life-cycle consumption: a textbook example. Econ Theory 17, 209–221 (2001). https://doi.org/10.1007/PL00004098
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DOI: https://doi.org/10.1007/PL00004098