Essays in the economics of consumption and saving
This thesis contains four papers on the economics of consumption and saving.The first paper considers the design of public pensions. In most developed countries, public
pensions are dispensed primarily on the basis of contributions during working life rather than on assets in retirement. This chapter investigates whether, in emphasising contributory over meanstested benefits, governments are getting the balance right. The framework used is a rich lifecycle model containing both public and private pensions. The paper finds that there is potential for (revenue-neutral) welfare-increasing extensions to means-tested support for pensioners.The second paper evaluates the retirement saving of the cohort currently retiring in the UK. Previous research has shown US households have saved vastly more than needed to `optimally’ smooth their consumption through retirement. Using a model in which households can save in both a private pension and in a non-pension asset, this chapter shows that the vast majority of those currently retiring in the UK, where the state replaces smaller proportions of earnings than in the US, have saved more than enough for their retirement. The third paper documents that households in the UK with extremely low measured income tend to spend much more than those with moderately low income and considers reasons for this. Of the likely explanations, the paper argues that under-reporting of income plays a major role. The fourth paper considers whether attaching a label to a government transfer can influence what it is spent on. Standard economic theory implies that the labelling of cash transfers should have no effect on spending patterns. This paper studies the Winter Fuel Payment, a UK cash transfer. The empirical strategy nests a regression discontinuity design within an Engel curve framework. The paper finds robust evidence of a behavioural effect of labelling.