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Household Savings Decision and Income Uncertainty

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  • Martin Beznoska
  • Richard Ochmann

Abstract

This paper empirically investigates the effects of changes in the interest rate as well as transitory income uncertainty on households' consumption-savings decision. Applying a structural demand model to German survey data, we estimate the uncompensated interest rate elasticity for savings, in line with the literature, to around zero. Accordingly, any policy-induced variation of net returns to savings is expected to have no significant effects on the level of savings. Moreover, we find significant effects of precautionary savings on the consumption-savings decision. As a result of a doubling of transitory income uncertainty, an average household increases savings by 4:4%. These effects vary by household composition and social status.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.359312.de/dp1046.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1046.

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Length: 53 p.
Date of creation: 2010
Date of revision:
Handle: RePEc:diw:diwwpp:dp1046

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Keywords: Consumption-savings decision; interest rate elasticity of savings; income uncertainty;

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References

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  1. Axel Borsch-Supan & Lothar Essig, 2003. "Household Saving in Germany: Results of the first SAVE study," NBER Working Papers 9902, National Bureau of Economic Research, Inc.
  2. Reinhart, Carmen & Ogaki, Masao & Ostry, Jonathan, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," MPRA Paper 6978, University Library of Munich, Germany.
  3. Schmidt-Hebbel, Klaus & Webb, Steven B & Corsetti, Giancarlo, 1992. "Household Saving in Developing Countries: First Cross-Country Evidence," World Bank Economic Review, World Bank Group, vol. 6(3), pages 529-47, September.
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Cited by:
  1. Ochmann, Richard, 2011. "Distributional and Welfare Effects of Germany's Year 2000 Tax Reform," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48686, Verein für Socialpolitik / German Economic Association.
  2. Richard Ochmann & Stefan Bach & Martin Beznoska, 2012. "The Retrospective Evaluation of Elements of the VAT System: The Case of Germany; Research Project on Behalf of the European Commission, TAXUD," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 63, number pbk63, March.
  3. Richard Ochmann, 2014. "Differential income taxation and household asset allocation," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 880-894, March.
  4. Johannes Geyer, 2011. "The Effect of Health and Employment Risks on Precautionary Savings," SOEPpapers on Multidisciplinary Panel Data Research 408, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. Marcus Klemm, 2012. "Job Security Perceptions and the Saving Behavior of German Households," Ruhr Economic Papers 0380, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  6. Martin Beznoska & Richard Ochmann, 2013. "The interest elasticity of household savings: a structural approach with German micro data," Empirical Economics, Springer, vol. 45(1), pages 371-399, August.

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