This paper analyses the savings behaviour of natives and immigrants in Germany. It is argued that uncertainty about future income and legal status (in case of immigrants) is a key component in the determination of the level of precautionary savings. Using the German Socio-economic Panel data it is shown that, although immigrants have lower levels of savings and are less likely to have regular savings than natives, the gap is significantly narrowed once we take loan repayments and remittances into account. Moreover, we find that marginal propensity to save for immigrants is about 40% higher than that for natives. We then exploit a natural experiment arising from a change in nationality law in Germany in 2000 to estimate the importance of precautionary savings. Using a difference-in-differences approach, we find that the easing of the requirements for naturalization has caused significant reductions of savings and remittances for immigrants as a whole, in the magnitude of 13% and 29% respectively, comparing to the pre-reform period. Our parametric specification shows that the introduction of the new nationality law reduces the gap between natives and immigrants in marginal propensity to save by 40% to 65%, depending on the measure of savings used. These findings suggest that much of the differences in terms of the savings behaviour between natives and immigrants are driven by the precautionary savings arising from the uncertainties about future income and legal status rather than cultural differences.
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Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers with number
33.
Length: 25 p. Date of creation: 2007 Date of revision: Publication status: Published in: Jahrbücher für Nationalökonomie und Statistik 228 (2008), 1, 5-25 Handle: RePEc:diw:diwsop:diw_sp33
Find related papers by JEL classification: D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth F22 - International Economics - - International Factor Movements and International Business - - - International Migration
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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.:
Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000.
"Do the Rich Save More?,"
NBER Working Papers
7906, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004.
"Do the Rich Save More?,"
Journal of Political Economy,
University of Chicago Press, vol. 112(2), pages 397-444, April.
[Downloadable!] (restricted)