An intergenerational theory of the consumption function

TL;DRAbstract

This thesis presents a theory of the consumption function called the 'Inter- Generational Hypothesis' (IGH). The theory starts from the premise that individuals derive utility not only from their own consumption, but also from the welfare of their offspring. Individuals are supposed to maximise an intergenerationally altruistic utility function subject to a lifetime budget constraint and so derive their optimal consumption and bequest plans. From these plans, it is possible to construct an individual's consumption function. This contains earnings and inheritance terms, and is non-linear in earnings; this is consistently aggregated over all living individuals to yield the aggregate IGH consumption function. A feature of this function is the rich set of intergenerational information hypotheses it is able to encompass; there are also several implications with respect to earnings redistribution policy. The IGH function is estimated using 23 years of post-war UK data, and tested against riv

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