Policy Uncertainty and Household Savings

Francesco Giavazzi and Michael Francis McMahon ()
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Francesco Giavazzi: IGIER (Universitá Bocconi), MIT, CEPR, and NBER

The Review of Economics and Statistics, 2012, vol. 94, issue 2, pages 517-531

Abstract: Using German microdata and a quasi-natural experiment, we provide evidence on how households respond to an increase in uncertainty. We find that household saving increases significantly following the increase in political uncertainty observed in the run-up to the 1998 German general election. We also find evidence of a labor supply response by workers who can use the margin offered by part-time employment. Our results are suggestive of the economic effects of “wars of attrition”: when political disagreement leads to delays in adopting a reform or the possibility that earlier reforms may be revoked, the increased uncertainty could slow the economy. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Keywords: household savings; policy uncertainty; labour supply; "wars of attrition" (search for similar items in EconPapers)
JEL-codes: D91 E21 E65 (search for similar items in EconPapers)
Date: 2012
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