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Precautionary Savings and Income Uncertainty: Evidence from Japanese Micro Data

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Author Info
Murata, Keiko (Econ and Social Research Institute, Cabinet Office of Japan)
Abstract

This paper tests the existence of precautionary savings using subjective or self-reported measures of income uncertainty drawn from Japanese household data (primarily from those in their 30s). Two subjective measures are tested: one concerning labor earnings and the other concerning public pension benefits. The results show that, among either nuclear family households or households that do not receive income transfers from parents, there exist precautionary savings due to uncertainty concerning public pension benefits. As the respondents are primarily in their 30s, we find that those households start to save based on precautionary motives early in their lives. The finding that the effect of public pension uncertainty concerning savings is manifested in nuclear family households suggests that intergenerational risk-sharing reduces risk and therefore wealth accumulation. Precautionary savings are found to take the form of relatively low-risk assets; no precautionary savings are found in securities. No evidence has been found for precautionary savings being motivated by uncertainty over labor earnings when economic prospects are utilized as the measure of labor income uncertainty.

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Publisher Info
Article provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.

Volume (Year): 21 (2003)
Issue (Month): 3 (October)
Pages: 21-52
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Handle: RePEc:ime:imemes:v:21:y:2003:i:3:p:21-52

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
D14 - Microeconomics - - Household Behavior - - - Personal Finance

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Mervyn A. King & Louis Dicks-Mireaux, 1982. "Asset Holdings and the Life Cycle," NBER Working Papers 0614, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
    Other versions:
  3. Saito, Makoto & Shiratsuka, Shigenori, 2003. "Precautionary Motives versus Waiting Options: Evidence from Aggregate Household Saving in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(3), pages 1-20, October. [Downloadable!]
  4. Starr-McCluer, Martha, 1996. "Health Insurance and Precautionary Savings," American Economic Review, American Economic Association, vol. 86(1), pages 285-95, March.
    Other versions:
  5. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
  6. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings uncertainty and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 307-337, November. [Downloadable!] (restricted)
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  7. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Blackwell Publishing, vol. 37(3), pages 353-60, July. [Downloadable!] (restricted)
  8. Engen, Eric M. & Gruber, Jonathan, 2001. "Unemployment insurance and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 545-579, June. [Downloadable!] (restricted)
  9. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January. [Downloadable!] (restricted)
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  10. Christopher D. Carroll & Andrew A. Samwick, 1998. "How Important Is Precautionary Saving?," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 410-419, August. [Downloadable!] (restricted)
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  11. Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Mark Kazarosian, 1997. "Precautionary Savings-A Panel Study," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 241-247, May. [Downloadable!] (restricted)
    Other versions:
  13. King, M A & Dicks-Mireaux, L-D L, 1982. "Asset Holdings and the Life-Cycle," Economic Journal, Royal Economic Society, vol. 92(366), pages 247-67, June. [Downloadable!] (restricted)
  14. Zhou, Yanfei, 2003. "Precautionary saving and earnings uncertainty in Japan: A household-level analysis," Journal of the Japanese and International Economies, Elsevier, vol. 17(2), pages 192-212, June. [Downloadable!] (restricted)
  15. Dardanoni, Valentino, 1991. "Precautionary Savings under Income Uncertainty: A Cross-Sectional Analysis," Applied Economics, Taylor and Francis Journals, vol. 23(1), pages 153-60, Part B, J.
  16. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Saito, Makoto & Shiratsuka, Shigenori, 2003. "Precautionary Motives versus Waiting Options: Evidence from Aggregate Household Saving in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 21(3), pages 1-20, October. [Downloadable!]
  2. Bartzsch, Nikolaus, 2006. "Precautionary saving and income uncertainty in Germany - new evidence from microdata," Discussion Paper Series 1: Economic Studies 2006,44, Deutsche Bundesbank, Research Centre. [Downloadable!]
    Other versions:
  3. Francesco Giavazzi & Michael McMahon, 2008. "Policy Uncertainty and Precautionary Savings," NBER Working Papers 13911, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Wako Watanabe, 2005. "Income Uncertainty and Self-Reported Precautionary Wealth: Evidence from the Japanese Micro Data," ISER Discussion Paper 0636, Institute of Social and Economic Research, Osaka University. [Downloadable!]
  5. Lothar Essig, 2005. "Precautionary saving and old-age provisions: Do subjective saving motive measures work?," MEA discussion paper series 05084, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
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