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

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  • Apps, Patricia

    () (University of Sydney)

  • Andrienko, Yuri

    () (University of Sydney)

  • Rees, Ray

    () (University of Munich)

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 household's 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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6824.

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Length: 20 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6824

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

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References

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  1. Matthias Fahn & Ray Rees, 2011. "Household Relational Contracts for Marriage, Fertility and Divorce," CESifo Working Paper Series 3655, CESifo Group Munich.
  2. Jonathan Parker & Bruce Preston, 2002. "Precautionary Saving and Consumption Fluctuations," NBER Working Papers 9196, National Bureau of Economic Research, Inc.
  3. Apps,Patricia & Rees,Ray, 2009. "Public Economics and the Household," Cambridge Books, Cambridge University Press, number 9780521716284.
  4. Louis Eeckhoudt & Harris Schlesinger, 2008. "Changes in Risk and the Demand for Saving," CESifo Working Paper Series 2388, CESifo Group Munich.
  5. Apps, Patricia F. & Rees, Ray, 1988. "Taxation and the household," Journal of Public Economics, Elsevier, vol. 35(3), pages 355-369, April.
  6. Rees, Ray, 1988. "Taxation and the Household," Munich Reprints in Economics 3411, University of Munich, Department of Economics.
  7. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-32, December.
  8. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
  9. Davies, James B. & Hoy, Michael, 2002. "Flat rate taxes and inequality measurement," Journal of Public Economics, Elsevier, vol. 84(1), pages 33-46, April.
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