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Consumption smoothing among working-class American families before social insurance

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  • John A. James
  • Michael G. Palumbo
  • Mark Thomas

Abstract

This paper examines the saving decisions of a large sample of turn-of-the-century working-class American families. We decompose each family's reported income into permanent and transitory components and then estimate marginal propensities to save from each component. Marginal propensities to save out of transitory income are large relative to the propensities based on permanent income, though the former lie much below one and the latter much above zero, remarkably similar to results based on contemporary data sets. Smoothing appears to have been primarily at medium rather than low frequencies, more consistent with precautionary than with life-cycle motives. Copyright 2007 , Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpm007
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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 59 (2007)
Issue (Month): 4 (October)
Pages: 606-640

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Handle: RePEc:oup:oxecpp:v:59:y:2007:i:4:p:606-640

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  1. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  2. Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
  3. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
  4. Carter, Susan B. & Sutch, Richard, 1996. "Myth of the Industrial Scrap Heap: A Revisionist View of Turn-of-the-Century American Retirement," The Journal of Economic History, Cambridge University Press, vol. 56(01), pages 5-38, March.
  5. Romer, Christina, 1986. "Spurious Volatility in Historical Unemployment Data," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 1-37, February.
  6. Keyssar,Alexander, 1986. "Out of Work," Cambridge Books, Cambridge University Press, number 9780521297677, October.
  7. R. Glenn Hubbard & Jonathan Skinner & Stephen P. Zeldes, 1993. "The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving," NBER Working Papers 4516, National Bureau of Economic Research, Inc.
  8. Marjorie A. Flavin, 1991. "The Joint Consumption/Asset Demand Decision: A Case Study in Robust Estimation," NBER Working Papers 3802, National Bureau of Economic Research, Inc.
  9. Palumbo, M.G., 1998. "Estimating the Effects of Earnings Uncertainty on Families's Saving and Insurance Decisions," Papers 98-07, Houston - Department of Economics.
  10. Paxson, Christina H, 1992. "Using Weather Variability to Estimate the Response of Savings to Transitory Income in Thailand," American Economic Review, American Economic Association, vol. 82(1), pages 15-33, March.
  11. Luigi Pistaferri, 2001. "Superior Information, Income Shocks, And The Permanent Income Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 465-476, August.
  12. 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.
  13. James, John A, 1993. "Changes in Economic Instability in 19th-Century America," American Economic Review, American Economic Association, vol. 83(4), pages 710-31, September.
  14. Alessie, Rob & Lusardi, Annamaria, 1997. "Saving and income smoothing: Evidence from panel data," European Economic Review, Elsevier, vol. 41(7), pages 1251-1279, July.
  15. Olney, Martha L., 1998. "When Your Word Is Not Enough: Race, Collateral, and Household Credit," The Journal of Economic History, Cambridge University Press, vol. 58(02), pages 408-431, June.
  16. Kantor, Shawn Everett & Fishback, Price V, 1996. "Precautionary Saving, Insurance, and the Origins of Workers' Compensation," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 419-42, April.
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