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

  • Patricia Apps
  • Yuri Andrienko
  • Ray Rees

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 households 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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File URL: https://www.cbe.anu.edu.au/researchpapers/cepr/DP674.pdf
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Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 674.

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Date of creation: Nov 2012
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Handle: RePEc:auu:dpaper:674
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  1. L. Eeckhoudt & H. Schlesinger, 2008. "Changes in risk and the demand for saving," Post-Print hal-00326101, HAL.
  2. Apps, Patricia F. & Rees, Ray, 1988. "Taxation and the household," Journal of Public Economics, Elsevier, vol. 35(3), pages 355-369, April.
  3. Jonathan A. Parker & Bruce Preston, 2004. "Precautionary Saving and Consumption Fluctuations," Working Papers 140, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  4. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-32, December.
  5. EECKHOUDT, Louis & SCHLESINGER, Harris, . "Changes in risk and the demand for saving," CORE Discussion Papers RP 2100, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Matthias Fahn & Ray Rees, 2011. "Household Relational Contracts for Marriage, Fertility and Divorce," CESifo Working Paper Series 3655, CESifo Group Munich.
  7. Rees, Ray, 1988. "Taxation and the Household," Munich Reprints in Economics 3411, University of Munich, Department of Economics.
  8. repec:cup:cbooks:9780521887878 is not listed on IDEAS
  9. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  10. Davies, James B. & Hoy, Michael, 2002. "Flat rate taxes and inequality measurement," Journal of Public Economics, Elsevier, vol. 84(1), pages 33-46, April.
  11. Ekern, Steinar, 1980. "Increasing Nth degree risk," Economics Letters, Elsevier, vol. 6(4), pages 329-333.
  12. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
  13. repec:cup:cbooks:9780521716284 is not listed on IDEAS
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