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Earnings Uncertainty and Precautionary Saving

Author

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  • Guiso, Luigi
  • Jappelli, Tullio
  • Terlizzese, Daniele

Abstract

We test for the presence of precautionary saving using a self-reported measure of earnings uncertainty drawn from the 1989 Italian Survey of Household Income and Wealth. The effect of uncertainty on saving and wealth accumulations is consistent with the theory of precautionary saving and with decreasing prudence. Earnings uncertainty, however, explains only a small fraction of saving and asset accumulation. The results cast doubt on the empirical relevance of precautionary saving as a response to earnings uncertainty, but not on the importance of the precautionary motive per se. Besides earnings uncertainty, other major risks such as health and mortality risks may be important determinants of wealth accumulation.

Suggested Citation

  • Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings Uncertainty and Precautionary Saving," CEPR Discussion Papers 699, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:699
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    Keywords

    Earnings Uncertainty; Precautionary Saving;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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