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Precautionary and Entrepreneurial Saving: New Evidence from German Households

  • Frank M. Fossen
  • Davud Rostam-Afschar

The well-documented positive correlation between income risk and wealth was interpreted as evidence for high amounts of precautionary wealth in various studies. However, the large estimates emerged from pooling non-entrepreneurs and entrepreneurs without controlling for heterogeneity. This paper provides evidence for Germany based on representative panel data including private wealth balance sheets. Entrepreneurs, who face high income risk, hold more wealth than employees, but it is shown that this is not due to precautionary motives. Entrepreneurs may rather save for old age, as they are usually not covered by statutory pension insurance. The analysis accounts for endogeneity of entrepreneurial choice.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.334109.de/dp920.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 920.

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Length: 31 p.
Date of creation: 2009
Date of revision:
Handle: RePEc:diw:diwwpp:dp920
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