Population aging, consumption budget allocation and sectoral growth

- The age profile of total consumption expenditure over the life cycle is S-shaped.
- Age profiles differ across components and yield an age profile of budget allocation.
- Age profiles are robust to various specifications and are driven by the age effect.
- Sectoral growth differs with population aging as people move along the age profiles.
- Differences increase if different income elasticities across products are concerned.

This paper assesses the heterogeneous effects of population aging on personal budget allocation across sectors. Using China's household survey data, we break down each household expenditure component into its constituent members. We find consistent and robust age profiles of the composition of personal consumption expenditures. Young people spend larger proportions of their budget on food and education, culture, and recreation services. The middle-aged spend significantly more on clothing and transportation and communication. Lastly, the elderly spend substantially more on food and health care and medical services. After controlling for period and cohort effects as well as other socio-economic factors, we still find age to be a fundamental driver of consumption budget allocation. We also incorporate the estimated results into the population forecast data and predict the evolution of China's consumption budget allocation patterns driven by demographic change.