Consumer Discount Rate and the Horizon: New Evidence

Abstract

An attempt has been made in this paper to provide new evidence concerning the length of the horizon, which is an important feature in the permanent income hypothesis. The results strongly support Friedman's assertion that the horizon is about three years long. This conclusion is based on empirical findings which suggest that the marginal propensity to consume out of permanent or current income is several times higher than the propensity to consume out of windfall receipts. The findings are based on four saving surveys and one expenditure survey conducted in Israel.