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Precautionary Saving and Social Insurance

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  • Hubbard, R Glenn
  • Skinner, Jonathan
  • Zeldes, Stephen P

Abstract

This paper argues that a life cycle model can replicate observed patterns in household wealth accumulation after counting explicitly for precautionary saving and asset-based, means-tested social insurance. The authors demonstrate that social insurance programs with means tests based on assets discourage saving by households with low expected lifetime income. In addition, they evaluate the model using a dynamic programming model. Assuming common preference parameters across lifetime income groups, the authors are able to replicate the empirical pattern that low-income households are more likely than high-income households to hold virtually no wealth. Copyright 1995 by University of Chicago Press.

Suggested Citation

  • Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
  • Handle: RePEc:ucp:jpolec:v:103:y:1995:i:2:p:360-99
    DOI: 10.1086/261987
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    More about this item

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty

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    1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

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