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Precautionary wealth and income uncertainty: a household-level analysis

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Abstract

This study investigates the presence of precautionary savings among self-employed farm households using an instrumental variable approach on farm-level data. Results indicate that precautionary saving is a powerful determinant of wealth accumulation among U.S. farm households. Precautionary savings account for 53% of total wealth accumulation in general. Our results indicate an age-wealth profile that is consistent with the life-cycle hypothesis. The share of precautionary saving in total wealth accumulation differs across farm households. Results show that for farm households receiving government payments (designed to benefit farmers by reducing income variability), precautionary saving account for a large share (51%) of wealth accumulation, compared to 41% for households that do not receive any government payments.

Suggested Citation

  • Ashok K. Mishra & Hiroki Uematsu & Rebekah R. Powell, 2012. "Precautionary wealth and income uncertainty: a household-level analysis," Journal of Applied Economics, Universidad del CEMA, vol. 15, pages 353-369, November.
  • Handle: RePEc:cem:jaecon:v:15:y:2012:n:2:p:353-369
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    Cited by:

    1. Rabitsch, Katrin & Schoder, Christian, 2016. "Buffer stock savings in a New-Keynesian business cycle model," FinMaP-Working Papers 64, Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents.
    2. Khanal, Aditya & Mishra, Ashok, 2016. "Income Risk, Habit Formation, and Precautionary Savings: The Case of Rural Households," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235597, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Income uncertainty; permanent income; precautionary savings; life-cycle; and instrumental variables; government program.;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity

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