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The One-Child Policy and Household Savings in China

  • Keyu Jin

    (London School of Economics)

  • Nicolas Coeurdacier

    (SciencesPo Paris)

This paper analyzes the impact of the 'one child policy' in China on its household saving behavior. First, it develops a life-cycle model with endogenous fertility, intergenerational transfers and human capital accumulation. We show a macroeconomic and a microeconomic channel of a fall in fertility on raising aggregate household saving: at the macroeconomic level, the population composition shifts initially towards the middle-aged—the high savers of the economy. At the microeconomic level, (1) expenditures of children fall—despite higher education investment in each child—as quantity substitutes for quality; (2) middle-aged save additionally for retirement in anticipation of reduced transfers from their only child. Second, our quantitative model implies policy-induced changes in aggregate savings and age-saving profiles broadly consistent with estimates from Chinese household-level data. Third, an empirical study using the birth of twins as a source of exogenous increase in fertility is shown to support the micro-economic channels we highlight. Overall, our estimation suggests that the policy is able to account for 30% to 50% of the rise in household savings rate since its implementation in 1980.

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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 790.

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Date of creation: 2013
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Handle: RePEc:red:sed013:790
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  1. Steven Lugauer & Nelson C. Mark & Chadwick R. Curtis, 2011. "Demographic Patterns and Household Saving in China," 2011 Meeting Papers 529, Society for Economic Dynamics.
  2. Chamon, Marcos & Prasad, Eswar, 2007. "Why Are Saving Rates of Urban Households in China Rising?," IZA Discussion Papers 3191, Institute for the Study of Labor (IZA).
  3. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640643, June.
  4. Guonan Ma & Wang Yi, 2010. "China's high saving rate: myth and reality," BIS Working Papers 312, Bank for International Settlements.
  5. Charles Yuji Horioka & Junmin Wan, 2007. "The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2077-2096, December.
  6. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
  7. Becker, Gary S & Lewis, H Gregg, 1973. "On the Interaction between the Quantity and Quality of Children," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages S279-88, Part II, .
  8. Andrew Chesher, 1998. "Individual demands from household aggregates: time and age variation in the composition of diet," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(5), pages 505-524.
  9. Michele Boldrin & Larry E. Jones, 2002. "Mortality, Fertility, and Saving in a Malthusian Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 775-814, October.
  10. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  11. Andrew Chesher, 1997. "Diet Revealed?: Semiparametric Estimation of Nutrient Intake-Age Relationships," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 160(3), pages 389-428.
  12. Rosenzweig, Mark R & Wolpin, Kenneth I, 1980. "Testing the Quantity-Quality Fertility Model: The Use of Twins as a Natural Experiment," Econometrica, Econometric Society, vol. 48(1), pages 227-40, January.
  13. Bussière, Matthieu & Kalantzis, Yannick & Lafarguette, Romain & Sicular, Terry, 2013. "Understanding household savings in China: the role of the housing market and borrowing constraints," MPRA Paper 44611, University Library of Munich, Germany.
  14. Angus Deaton & Christina Paxson, 2000. "Growth and Saving Among Individuals and Households," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 212-225, May.
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