We analyze the impact of an increase in the risk of divorce on the saving behaviour of married couples. From a theoretical perspective, the expected sign of the effect is ambiguous. We take advantage of the legalization of divorce in Ireland in 1996 as an exogenous increase in the likelihood of marital dissolution. We analyze the saving behaviour over time of couples who were married before the law was passed. We propose a difference-in-differences approach where we use as comparison groups either married couples in other European countries (not affected by the law change), or Irish families who did not experience a significant increase in the expected risk of divorce (such as very religious families, or single individuals). Our results suggest that the increase in the risk of divorce brought about by the law was followed by an increase in the propensity to save of married couples, consistent with a rise in precautionary savings interpretation. An increase in the risk of marital dissolution of about 40 percent led to a 7 to 13 percent rise in the proportion of married couples reporting positive savings.
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number
3726.
Find related papers by JEL classification: J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure D10 - Microeconomics - - Household Behavior - - - General K36 - Law and Economics - - Other Substantive Areas of Law - - - Family and Personal Law E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
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