This paper combines income and expediture with time use data to provide a unique picture of the time paths of labour supplies, saving and full consumption for two-adult households over the life cycle. These data are used to test the life cycle model presented in the paper, at the core of which is the hypothesis that households face a borrowing interest rate that rises sharply with the amount of non collateral based borrowing. The household members jointly choose time paths of time use, consumption and saving over their life cycle in the face of this capital market imperfection. This model explains the data much better than does the alternative hypothesis of a perfect capital market. It also allows the straightforward resolution of a number of puzzles that have been identified in the literature on life cycle saving behaviour. Finally, households are shown to differ significantly in their saving behaviour in a way that depends on secondary earner labour supply, with a strong positive association between saving and the secondary earner's income. |
