<p>Both the Life Cycle Hypothesis and Permanent Income Hypothesis concludes the same that permanent income, not the current income, is the primary determinant of consumption. If that is true, then how these two models can be distinguished?</p>

CC BY-SA 4.0
2020-12-14T11:46:57.557Z
I think PIH is broader as it *derives* the consumption equation (as function of wealth and income) by inter-temporal utility maximization under budget constraint. LCH assumes a *linear* relationship between resources and consumption. This linear relationship is only true by imposing certain restrictions on utility function of the household (of coursr a detailed answer would require giving several references - will try that as soon as I get some time). So PIH gives LCH under some restrictions on the utility function.
Dayne
<macroeconomics><consumption>
What's the conclusion of PIH and LCH?
Khola Khan
# What's the conclusion of PIH and LCH?

(Asked by: username_0 on 2020-12-14)

Both the Life Cycle Hypothesis and Permanent Income Hypothesis concludes the same that permanent income, not the current income, is the primary determinant of consumption. If that is true, then how these two models can be distinguished?

**Tags:** macroeconomics, consumption

> **Comments:**
> **username_1**: I think PIH is broader as it *derives* the consumption equation (as function of wealth and income) by inter-temporal utility maximization under budget constraint. LCH assumes a *linear* relationship between resources and consumption. This linear relationship is only true by imposing certain restrictions on utility function of the household (of coursr a detailed answer would require giving several references - will try that as soon as I get some time). So PIH gives LCH under some restrictions on the utility function.  

---

## 0 answers

