Abstract

We collect 2,735 estimates of the elasticity of intertemporal substitution in consumption from 169 published studies that cover 104 countries during different time periods. The estimates vary substantially from country to country, even after controlling for 30 aspects of study design. Our results suggest that income and asset market participation are the most effective factors in explaining the heterogeneity: households in rich countries and countries with high stock market participation substitute a larger fraction of consumption intertemporally in response to changes in expected asset returns. Micro-level studies that focus on sub-samples of rich households or asset holders also find systematically larger values of the elasticity.

Fig: Estimates of the elasticity of intertemporal substitution in consumption vary.

Map of country-level estimates of the EIS

Reference: Tomas Havranek, Roman Horvath, Zuzana Irsova, and Marek Rusnak (2015), "Cross-Country Heterogeneity in Intertemporal Substitution." Journal of International Economics 96(1), 100-118.

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Headline result

Why intertemporal substitution varies across countries: the meta-analytic finding is income and asset market participation are the most effective factors in explaining the cross-country heterogeneity, based on 2,735 estimates from 169 published studies covering 104 countries (Havranek et al. 2015, Journal of International Economics).

How to cite

Tomas Havranek, Roman Horvath, Zuzana Irsova, and Marek Rusnak (2015), "Cross-Country Heterogeneity in Intertemporal Substitution." Journal of International Economics 96(1), 100-118.

BibTeX 
@article{havranek2015substitution,
  author  = {Tomas Havranek and Roman Horvath and Zuzana Irsova and Marek Rusnak},
  title   = {Cross-Country Heterogeneity in Intertemporal Substitution},
  journal = {Journal of International Economics},
  year    = {2015},
  doi     = {10.1016/j.jinteco.2015.01.012},
}

Where this has been used

Thomas Sargent and John Stachurski cite this paper for a plausible average value in Dynamic Programming (Cambridge University Press): “the detailed meta-analysis by Havranek et al. (2015) suggests 0.5 as a plausible average value for international studies, with rich countries tending slightly higher.”

Simon Johnson, Lukasz Rachel, and Catherine Wolfram set the inverse of that elasticity to 2 in A Theory of Price Caps on Nonrenewable Resources, American Economic Review 116(7): 2711-2753: “the mean value in the influential meta-study of Havranek, Horvath, Irsova, and Rusnak (2015)”.

Tomohiro Hirano and Joseph Stiglitz cite this paper, the companion paper on publication bias, and the capital-labor substitution meta-analysis in Overlapping generations models, multiplicity of steady states and momentary equilibria, and economic fluctuations, Oxford Review of Economic Policy.