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Risk and Saving in Two-Person Households: More Scope for Precautionary Saving

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  • Patricia Apps
  • Yuri Andrienko
  • Ray Rees

Abstract

The existing literature suggests that when the saving decision of two-earner households under risk is analysed, standard results on the existence of precautionary saving no longer apply: precautionary saving is obtained if and only if very stringent conditions hold. This paper shows that when the two-earner households saving decision is formulated more generally, standard assumptions suffice for precautionary saving to exist under increases in risk of the first and second orders, but not for higher orders.

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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 674.

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Date of creation: Nov 2012
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Handle: RePEc:auu:dpaper:674

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Keywords: Two-earner households; risk order; precautionary saving;

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  1. Eeckhoudt, Louis & Schlesinger, Harris, 2008. "Changes in risk and the demand for saving," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1329-1336, October.
  2. Rees, Ray, 1988. "Taxation and the Household," Munich Reprints in Economics 3411, University of Munich, Department of Economics.
  3. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
  4. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521716284, April.
  5. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  6. Matthias Fahn & Ray Rees, 2011. "Household Relational Contracts for Marriage, Fertility and Divorce," CESifo Working Paper Series 3655, CESifo Group Munich.
  7. Davies, James B. & Hoy, Michael, 2002. "Flat rate taxes and inequality measurement," Journal of Public Economics, Elsevier, vol. 84(1), pages 33-46, April.
  8. Jonathan A. Parker & Bruce Preston, 2005. "Precautionary Saving and Consumption Fluctuations," American Economic Review, American Economic Association, vol. 95(4), pages 1119-1143, September.
  9. Apps, Patricia F. & Rees, Ray, 1988. "Taxation and the household," Journal of Public Economics, Elsevier, vol. 35(3), pages 355-369, April.
  10. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-32, December.
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Cited by:
  1. Patricia Apps & Yuri Andrienko & Ray Rees, 2014. "Risk and Precautionary Saving in Two-Person Households," American Economic Review, American Economic Association, vol. 104(3), pages 1040-46, March.

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