Age structure effects and consumption in the V4 countries

In this paper, the effects of a changing age distribution on aggregate consumption are analysed empirically. Growth in the number of older persons is a global phenomenon and do not omit countries of the Visegrad Group (V4). The analysis is done by estimating consumption functions of V4 countries which controls for age structure effects. The Life-Cycle Hypothesis posits that the main motivation for borrowing and saving is to smooth the consumption during different phases of people's life. Modigliani and his collaborators claim that individuals' consumption and saving behaviour are functions of their age; an individual borrows as young, saves as middle-aged and dissaves when old. Cross-country regressions regularly find that propensity to consume is higher when the population share of the elderly and children is high. The `dependency ratio', defined as the number of children and retired persons to those of working age, is used to represent changes in the age structure, time series are annual. Time series for the economic variables consumption, income and wealth are quarterly and they cover the period from 2002(1) to 2017(4).