Testing the life-cycle hypothesis with a norwegian household panel

This article reports the results of progressive refinements in the models used to test the permanent-income hypothesis. These tests are undertaken with a household panel, constructed from diaries, by the Norwegian Central Bureau of Statistics. The data combine detailed expenditure and price information with income and wealth data from the government’s tax files for 1975-1977. Using a model that takes account of relative price change and demographic variables, recognizes the effects of durables, and incorporates explicit recognition of the effects of differences in the timing of observations or income innovations and spending, the results indicate that the data are consistent with the permanent-income/life-cycle hypothesis.