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Precautionary Saving and Income Uncertainty in Germany - New Evidence from Microdata

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Author Info
Nikolaus Bartzsch () (Deutsche Bundesbank, Frankfurt am Main)

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Abstract

This paper uses microdata from the German Socio-Economic Panel Study (GSOEP) to analyse the importance of precautionary saving under income uncertainty. In a cross-section of house-holds, wealth in 2002 is regresssed on alternative measures of income uncertainty. In addition to the usual controls, risk aversion is also taken into account. When using net financial wealth, precautionary saving is statistically significant and economically quite important. Precautionary net financial wealth is estimated to make up, on average, around 20% of total aggregate net financial wealth. Unlike net financial wealth, housing wealth is not used as a buffer stock against income uncertainty, the most likely reason being its illiquidity in Germany. Not controlling for risk aversion leads to an overestimation of precautionary wealth. This result contradicts the findings of Fuchs-Schuendeln and Schuendeln (2005) who suggest that, owing the self-selection, not controlling for risk aversion results in a significant reduction in aggregate precautionary wealth holdings.

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Publisher Info
Article provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.

Volume (Year): 228 (2008)
Issue (Month): 1 (February)
Pages: 5-24
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Handle: RePEc:jns:jbstat:v:228:y:2008:i:1:p:5-24

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Web page: http://wiwi.uni-giessen.de/home/oekonometrie/Jahrbuecher/
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Related research
Keywords: Precautionary saving; precautionary wealth; buffer-stock model; self-selection;

Other versions of this item:

Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

This item is featured on the following reading lists:

  1. SOEP based publications
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. Kimball, Miles S & Weil, Philippe, 2003. "Precautionary Saving and Consumption Smoothing Across Time and Possibilities," CEPR Discussion Papers 4005, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. 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)
  3. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings Uncertainty and Precautionary Saving," CEPR Discussion Papers 699, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Dohmen, Thomas J & Falk, Armin & Huffman, David & Sunde, Uwe, 2008. "The Intergenerational Transmission of Risk and Trust Attitudes," CEPR Discussion Papers 6844, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Börsch-Supan, Axel & Reil-Held, Anette & Rodepeter, Ralf & Schnabel, Reinhold & Winter, Joachim, 1999. "Ersparnisbildung in Deutschland: Meßkonzepte und Ergebnisse auf Basis der EVS," Sonderforschungsbereich 504 Publications 99-02, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  6. Christopher D Carroll, 1990. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," Economics Working Paper Archive 371, The Johns Hopkins University,Department of Economics, revised Aug 1996.
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  7. 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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  8. Guiso, Luigi & Paiella, Monica, 2004. "The Role of Risk Aversion in Predicting Individual Behaviours," CEPR Discussion Papers 4591, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA). [Downloadable!]
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  11. 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!]
  12. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  13. Mark Kazarosian, 1993. "Precautionary Savings- A Panel Study," Boston College Working Papers in Economics 247, Boston College Department of Economics.
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  14. Thomas K. Bauer & Mathias Sinning, 2005. "The Savings Behavior of Temporary and Permanent Migrants in Germany," IZA Discussion Papers 1632, Institute for the Study of Labor (IZA). [Downloadable!]
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  15. Jonathan S. Skinner, 1987. "Risky Income, Life Cycle Consumption, and Precautionary Savings," NBER Working Papers 2336, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  16. Zeldes, Stephen P, 1989. "Optimal Consumption with Stochastic Income: Deviations from Certainty Equivalence," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 275-98, May. [Downloadable!] (restricted)
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  17. Lusardi, Annamaria, 1997. "Precautionary saving and subjective earnings variance," Economics Letters, Elsevier, vol. 57(3), pages 319-326, December. [Downloadable!] (restricted)
  18. John Bound & David A. Jaeger & Regina Baker, 1993. "The Cure Can Be Worse than the Disease: A Cautionary Tale Regarding Instrumental Variables," NBER Technical Working Papers 0137, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  20. 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.
  21. 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!]
  22. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September. [Downloadable!] (restricted)
    Other versions:
  23. Daniel Schunk, 2007. "What Determines the Saving Behavior of German Households? An Examination of Saving Motives and Saving Decisions," MEA discussion paper series 07124, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
    Other versions:
  24. Caballero, Ricardo J, 1991. "Earnings Uncertainty and Aggregate Wealth Accumulation," American Economic Review, American Economic Association, vol. 81(4), pages 859-71, September. [Downloadable!] (restricted)
  25. Christopher D. Carroll & Miles S. Kimball, 2006. "Precautionary Saving and Precautionary Wealth," Economics Working Paper Archive 530, The Johns Hopkins University,Department of Economics. [Downloadable!]
Full references

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. Nikolaus Bartzsch, 2006. "Vorsichtssparen und Einkommensunsicherheit privater Haushalte in Deutschland: eine ökonometrische Untersuchung auf Basis von SOEP-Daten," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 75(4), pages 109-120. [Downloadable!] (restricted)
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