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Savings decisions under life-time and earnings uncertainty : empirical evidence from West German household data

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  • Rodepeter, Ralf
  • Winter, Joachim

Abstract

We analyze a model of life-cycle savings decisions which allows for both life-time and income uncertainty. We then simulate life-cycle saving rates based on empirical income processes estimated from West German household data. Our main findings are, first, that allowing for mortality risk improves the life-cycle model's predictions slightly, and second, that simulated saving rates still fail to match their empirical counterparts. While our model correctly predicts differential peak saving rates during working life for three household types that face different income processes, it cannot explain an important salient feature of saving in Germany: Empirically, there is almost no post-retirement dissaving, while our life-cycle model predicts substantial dissaving even though we control for the generous German pension system which results in relatively high post-retirement income.

Suggested Citation

  • Rodepeter, Ralf & Winter, Joachim, 1998. "Savings decisions under life-time and earnings uncertainty : empirical evidence from West German household data," Papers 98-58, Sonderforschungsbreich 504.
    • Handle: RePEc:mnh:spaper:2862
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    References listed on IDEAS

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    Cited by:

    1. Börsch-Supan, Axel & Reil-Held, Anette & Rodepeter, Ralf & Schnabel, Reinhold & Winter, Joachim, 1999. "Ersparnisbildung in Deutschland: Meßkonzepte und Ergebnisse auf Basis der EVS," Sonderforschungsbereich 504 Publications 99-02, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    2. Rodepeter, Ralf & Winter, Joachim, 1999. "Rules of thumb in life-cycle savings models," Sonderforschungsbereich 504 Publications 99-81, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    3. Axel Börsch-Supan & Anette Reil-Held & Ralf Rodepeter & Reinhold Schnabel & University of Mannheim & Germany, 2000. "Household Savings in Germany," Macroeconomics 0004053, University Library of Munich, Germany.
    4. Börsch-Supan, Axel & Annamaria Lusardi, 2002. "Saving Viewed from a Cross-National Perspective," MEA discussion paper series 02024, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.

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    More about this item

    Keywords

    savings ; life-cycle models ; income uncertainty ; life-time uncertainty;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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