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A direct test of the buffer-stock model of saving

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  • Jappelli, Tullio
  • Padula, Mario
  • Pistaferri, Luigi

Abstract

Recent models with liquidity constraints and impatience emphasize that consumers use savings to buffer income fluctuations. When wealth is below an optimal target, consumers try to increase their buffer stock of wealth by saving more. When it is above target, they increase consumption. This important implication of the buffer stock model of saving has not been subject to direct empirical testing. We derive from the model an appropriate theoretical restriction and test it using data on working-age individuals drawn from the 2002 and 2004 Italian Surveys of Household Income and Wealth. One of the most appealing features of the survey is that it has data on the amount of wealth held for precautionary purposes, which we interpret as target wealth in a buffer stock model. The test results do not support buffer stock behavior, even among population groups that are more likely, a priori, to display such behavior. The saving behavior of young households is instead consistent with models in which impatience, relative to prudence, is not as high as in buffer stock models.

Suggested Citation

  • Jappelli, Tullio & Padula, Mario & Pistaferri, Luigi, 2007. "A direct test of the buffer-stock model of saving," CFS Working Paper Series 2007/29, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:200729
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Castellucci, Fabrizio & Padula, Mario & Pica, Giovanni, 2011. "The age-productivity gradient: Evidence from a sample of F1 drivers," Labour Economics, Elsevier, vol. 18(4), pages 464-473, August.
    2. repec:kap:sbusec:v:51:y:2018:i:1:d:10.1007_s11187-017-9919-x is not listed on IDEAS
    3. Craig, Steven G. & Hemissi, Wided & Mukherjee, Satadru & Sørensen, Bent E., 2016. "How do politicians save? Buffer-stock management of unemployment insurance finance," Journal of Urban Economics, Elsevier, vol. 93(C), pages 18-29.
    4. Maria Rosaria Marino & Marzia Romanelli & Martino Tasso, 2016. "Women at work: the impact of welfare and fiscal policies in a dynamic labor supply model," Temi di discussione (Economic working papers) 1084, Bank of Italy, Economic Research and International Relations Area.
    5. Fulford, Scott L., 2015. "The surprisingly low importance of income uncertainty for precaution," European Economic Review, Elsevier, vol. 79(C), pages 151-171.
    6. Barceló, Cristina & Villanueva, Ernesto, 2016. "The response of household wealth to the risk of job loss: Evidence from differences in severance payments," Labour Economics, Elsevier, vol. 39(C), pages 35-54.
    7. Marco Percoco, 2015. "Homeownership and saving preferences: evidence from Italy," Letters in Spatial and Resource Sciences, Springer, vol. 8(2), pages 141-149, July.
    8. Cristina Barceló & Ernesto Villanueva, 2010. "The response of household wealth to the risk of losing the job: evidence from differences in firing costs," Working Papers 1002, Banco de España;Working Papers Homepage.

    More about this item

    Keywords

    Buffer Stock Model; Precautionary Saving; Intertemporal Choice;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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