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The Size of the Precautionary Component of Household Saving: China and the U.S

  • Steven Lugauer

    (University of Notre Dame)

  • Nelson Mark

    (University of Notre Dame)

  • Horag Choi

    (Monash University)

We decompose the household saving rate into precautionary and non-precautionary components. When applied to Chinese households, who save 30% of disposable income, the precautionary motive accounts for two-thirds of that saving rate. For some admissible parameter values, the saving rate increases with the growth rate of income thus helping to explain why fast growing economies also have high saving rates. A finite-lifetimes version of the model produces the U-shaped age-saving rate profile observed in Chinese household data. Comparative calculations for U.S. households indicate that to match the U.S. data, the non-borrowing constraint must be relaxed.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1046.

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Date of creation: 2013
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Handle: RePEc:red:sed013:1046
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  15. repec:ebl:ecbull:v:30:y:2010:i:1:p:524-533 is not listed on IDEAS
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