Forced Savings in the Soviet Republics: Re-examination

The current paper empirically examines the determinants of household savings rates in the Soviet republics, by utilizing the panel data of an aggregated household budget survey in the period from 1965 to 1989. Earlier studies claimed that increases in household savings starting from the late 1950s were the direct result of worsening shortages of consumer goods; therefore, they considered Soviet households' savings to be involuntary ones and that households were "forced" to save under severe shortage conditions in the official consumer market. But they failed to fully investigate this problem mainly because of unavailability of data on household incomes and expenditures and of ignorance of a widespread informal economy ("second economy"). When the informal economy could at least partly provide households with opportunities to spend their money on lacking goods, households would be able to choose whether to save money and stand in line for scarce goods at the official retail shops, or move to the informal market. This understanding leads to the implication that there existed neither involuntary nor forced savings. In order to tackle this unsolved research problem, the Soviet households' savings rate function is estimated by taking into account shortages, the informal economy, and other factors, among them life-cycle factors, and then the "forced savings rate" is calculated. The main findings of this study are as follows: Firstly, even taking into account these factors, there existed Soviet-unique factors, namely the shortage factor, informal factor, and demand-spillover effect. Secondly, the magnitudes of these three factors varied among regions, so forced savings rates also varied. According to our estimation results, forced savings in the Slavic and Baltic regions accounted for more than 40% of the total savings just before the collapse of the Soviet Union, while those in the Caucasian and Central Asian regions accounted for less than 10%.