The Life-Cycle/Permanent Income Hypothesis becomes a major theory concerned on the consumer behavior and the theory of consumption function. It's major implication is about the relation between the income changes and the corresponding consumption changes, and it predicts that the consumption would be less sensitive to income change than ordinary guesses.
In recent years, its major implication becomes a more critical issue with regard to the effects of government policy and social security. But the test of the theory could not give explicit conclusions about the validity of it's major implications despite of many hard works and debates.
One of it's major cause probably be the restrictions of appropriate data sets. In this study, I tried to test the Life-Cycle/Permanent Income Hypothesis using Korean household panel data which hold household specific consumption expenditure and income profile in monthly bases. The Korean household panel data were obtained from the Survey of the Famaily and Expenditure for 1984. conducted by the Nation Statistical Office of Republic of Korea.
The results do not seem to support the Life-cycle/Permanent Income Hypothesis and the reason probably be the small sample size and the short time-span of the data.
