The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Life Cycle Hypothesis

  • Malcolm R. Fisher
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_914

Abstract

The life cycle hypothesis presents a well-defined linkage between the consumption plans of an individual and his income and expectations as to income as he passes from childhood, through the work participating years, into retirement and eventual decease. Early attempts to establish such a linkage were made by Irving Fisher (1930) and again by Harrod (1948) with his notion of hump saving, but a sharply defined hypothesis which carried the argument forward both theoretically and empirically with its range of well-specified tests for cross-section and time series evidence was first advanced in 1954 by Modigliani and Brumberg. Both their papers and advance copies of the permanent income theory of Milton Friedman (1957) were circulating in 1953 and led to M.R. Fisher carrying out tests of the theories even preceding publication of Friedman’s work (1956). Both the Modigliani–Brumberg and the Friedman theories are referred to as life cycle theories and they certainly have many similar implications, but the one that is more closely related to the life cycle with emphasis on age – Modigliani and Brumberg – is the one to which we confine ourselves here.

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Malcolm R. Fisher
    • 1
  1. 1.