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The Risk of Divorce and Household Saving Behavior

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  • Gonzalez, Libertad

    ()
    (Universitat Pompeu Fabra)

  • Özcan, Berkay

    ()
    (London School of Economics)

Abstract

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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3726.

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Length: 48 pages
Date of creation: Sep 2008
Date of revision:
Publication status: published in: Journal of Human Resources, 2013, 48 (2), 404-434
Handle: RePEc:iza:izadps:dp3726

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Keywords: divorce law; divorce; saving; marriage;

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References

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  1. Papps, Kerry L., 2006. "The Effects of Divorce Risk on the Labour Supply of Married Couples," IZA Discussion Papers 2395, Institute for the Study of Labor (IZA).
  2. Johnson, William R & Skinner, Jonathan, 1986. "Labor Supply and Marital Separation," American Economic Review, American Economic Association, vol. 76(3), pages 455-69, June.
  3. Betsey Stevenson, 2006. "The impact of divorce laws on marriage-specific capital," Working Paper Series 2006-43, Federal Reserve Bank of San Francisco.
  4. Shelly Lundberg & Elaina Rose, 1998. "The Determinants of Specialization Within Marriage," Discussion Papers in Economics at the University of Washington 0048, Department of Economics at the University of Washington.
  5. Lommerud, K.E., 1988. "Marital Division Of Labor With Risk Of Divorce: The Role Of Enforcement Of Contracts," Papers 09-88, Norwegian School of Economics and Business Administration-.
  6. Libertad González & Tarja K. Viitanen, 2006. "The Effect of Divorce Laws on Divorce Rates in Europe," Working Papers 2006003, The University of Sheffield, Department of Economics, revised Mar 2006.
  7. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
  8. Laurence R. Iannaccone, 1998. "Introduction to the Economics of Religion," Journal of Economic Literature, American Economic Association, vol. 36(3), pages 1465-1495, September.
  9. Luis Cubeddu & Jose-Victor Rios-Rull, 1997. "Marital risk and capital accumulation," Staff Report 235, Federal Reserve Bank of Minneapolis.
  10. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  11. Saku Aura, 2002. "Uncommitted Couples: Some Efficiency and Policy Implications of Marital Bargaining," CESifo Working Paper Series 801, CESifo Group Munich.
  12. Laurence R. Iannaccone, 1998. "Corrigenda [Introduction to the Economics of Religion]," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 1941-1941, December.
  13. Lupton, J. & Smith, J.P., 1999. "Marriage, Assets, and Savings," Papers 99-12, RAND - Labor and Population Program.
  14. Betsey Stevenson, 2008. "Divorce Law and Women's Labor Supply," NBER Working Papers 14346, National Bureau of Economic Research, Inc.
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Cited by:
  1. Cremer, Helmuth & Pestieau, Pierre & Roeder, Kerstin, 2012. "United but (Un-)Equal: Human Capital, Probability of Divorce and the Marriage Contract," IZA Discussion Papers 7038, Institute for the Study of Labor (IZA).
  2. Hans Fehr & Manuel Kallweit & Fabian Kindermann, 2009. "Marital Risk, Family Insurance, and Public Policy," SOEPpapers on Multidisciplinary Panel Data Research 226, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. Ortigueira, Salvador & Siassi, Nawid, 2013. "How important is intra-household risk sharing for savings and labor supply?," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 650-666.
  4. Bargain, Olivier & González, Libertad & Keane, Claire & Özcan, Berkay, 2010. "Female Labour Supply and Divorce: New Evidence from Ireland," Papers WP346, Economic and Social Research Institute (ESRI).
  5. Gonzalez, Libertad & Viitanen, Tarja, 2008. "The Long Term Effects of Legalizing Divorce on Children," IZA Discussion Papers 3789, Institute for the Study of Labor (IZA).
  6. Filippo Pericoli & Luigi Ventura, 2012. "Family dissolution and precautionary savings: an empirical analysis," Review of Economics of the Household, Springer, vol. 10(4), pages 573-595, December.
  7. Alessandra Voena, 2011. "Yours, Mine and Ours: Do Divorce Laws Affect the Intertemporal Behavior of Married Couples?," Discussion Papers 10-022, Stanford Institute for Economic Policy Research.
  8. Alessandra Voena, 2010. "Yours, Mine and Ours: Do Divorce Laws affect the Intertemporal Behavior of Married Couples??," 2010 Meeting Papers 1329, Society for Economic Dynamics.

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