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Household Savings Decision and Income Uncertainty

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  • Martin Beznoska
  • Richard Ochmann

Abstract

This paper empirically investigates the effects of changes in the interest rate as well as transitory income uncertainty on households' consumption-savings decision. Applying a structural demand model to German survey data, we estimate the uncompensated interest rate elasticity for savings, in line with the literature, to around zero. Accordingly, any policy-induced variation of net returns to savings is expected to have no significant effects on the level of savings. Moreover, we find significant effects of precautionary savings on the consumption-savings decision. As a result of a doubling of transitory income uncertainty, an average household increases savings by 4:4%. These effects vary by household composition and social status.

Suggested Citation

  • Martin Beznoska & Richard Ochmann, 2010. "Household Savings Decision and Income Uncertainty," Discussion Papers of DIW Berlin 1046, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1046
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    File URL: https://www.diw.de/documents/publikationen/73/diw_01.c.359312.de/dp1046.pdf
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    References listed on IDEAS

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    1. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
    2. James N. Morgan, 1951. "The Structure of Aggregate Personal Saving," Journal of Political Economy, University of Chicago Press, vol. 59(6), pages 528-528.
    3. Schmidt-Hebbel, Klaus & Webb, Steven B & Corsetti, Giancarlo, 1992. "Household Saving in Developing Countries: First Cross-Country Evidence," The World Bank Economic Review, World Bank, vol. 6(3), pages 529-547, September.
    4. Axel Borsch-Supan & Lothar Essig, 2003. "Household Saving in Germany: Results of the first SAVE study," NBER Working Papers 9902, National Bureau of Economic Research, Inc.
    5. Summers, Lawrence H, 1984. "The After-Tax Rate of Return Affects Private Savings," American Economic Review, American Economic Association, vol. 74(2), pages 249-253, May.
    6. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
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    Citations

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    Cited by:

    1. Richard Ochmann, 2014. "Differential income taxation and household asset allocation," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 880-894, March.
    2. repec:zbw:rwirep:0380 is not listed on IDEAS
    3. Richard Ochmann, 2010. "Distributional and Welfare Effects of Germany's Year 2000 Tax Reform," Discussion Papers of DIW Berlin 1083, DIW Berlin, German Institute for Economic Research.
    4. Belke Ansgar, 2014. "Europäische Zentralbank: kontraproduktive unkonventionelle Geldpolitik und der Euro-Wechselkurs / European Central Bank: counter-productive unconventional monetary policy and the exchange rate," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 65(1), pages 117-132, January.
    5. Marcus Klemm, 2012. "Job Security Perceptions and the Saving Behavior of German Households," Ruhr Economic Papers 0380, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    6. Klemm, Marcus, 2012. "Job Security Perceptions and the Saving Behavior of German Households," Ruhr Economic Papers 380, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Dimitar Damyanov, 2016. "Real Returns, Interest Income Tax, and Household Saving in Bulgaria," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 15-23, March.
    8. Richard Ochmann & Stefan Bach & Martin Beznoska, 2012. "The Retrospective Evaluation of Elements of the VAT System: The Case of Germany; Research Project on Behalf of the European Commission, TAXUD," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 63, number pbk63, April.
    9. Johannes Geyer, 2011. "The Effect of Health and Employment Risks on Precautionary Savings," SOEPpapers on Multidisciplinary Panel Data Research 408, DIW Berlin, The German Socio-Economic Panel (SOEP).
    10. Martin Beznoska & Richard Ochmann, 2013. "The interest elasticity of household savings: a structural approach with German micro data," Empirical Economics, Springer, vol. 45(1), pages 371-399, August.

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    More about this item

    Keywords

    Consumption-savings decision; interest rate elasticity of savings; income uncertainty;
    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

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