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Chinese household saving and dependent children: Theory and evidence

Author

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  • Lugauer, Steven
  • Ni, Jinlan
  • Yin, Zhichao

Abstract

This paper examines the impact of family size on household saving. We first study a theoretical life-cycle model that includes finite lifetimes and saving for retirement and in which parents care about the consumption by their dependent children. The model implies a negative relationship between the number of dependent children in the family and the household saving rate. Then, we test the model's implications using new survey data on household finances in China. We use the differential enforcement of the one-child policy across counties to address the possible endogeneity between household saving and fertility decisions in a two-stage least squares Tobit regression. We find that Chinese families with fewer dependent children have significantly higher saving rates. The data yields several additional insights on household saving patterns. Households with college-age children have lower saving rates, and households residing in urban areas have higher saving rates and a lower ratio of education expenditures to income. However, having an additional child reduces saving rates more for households in urban areas than in rural areas. Our regressions also indicate that saving rates vary with age and tend to be higher for households with more workers, higher education, better health, and more assets.

Suggested Citation

  • Lugauer, Steven & Ni, Jinlan & Yin, Zhichao, 2019. "Chinese household saving and dependent children: Theory and evidence," China Economic Review, Elsevier, vol. 57(C).
  • Handle: RePEc:eee:chieco:v:57:y:2019:i:c:s1043951x17301104
    DOI: 10.1016/j.chieco.2017.08.005
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    More about this item

    Keywords

    China; Household saving; Demographics; Overlapping generations;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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