Why are Saving Rates of Urban Households in China Rising?

Marcos Chamon () and Eswar Prasad ()

No 14546, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: From 1995 to 2005, the average urban household saving rate in China rose by 7 percentage points, to about one quarter of disposable income. We use household-level data to explain why households are postponing consumption despite rapid income growth. Tracing cohorts over time indicates a virtual absence of consumption smoothing over the life cycle. Saving rates have increased across all demographic groups although the age profile of savings has an unusual pattern in recent years, with younger and older households having relatively high saving rates. We argue that these patterns are best explained by the rising private burden of expenditures on housing, education, and health care. These effects and precautionary motives may have been amplified by financial underdevelopment, as reflected in constraints on borrowing against future income and low returns on financial assets.

JEL-codes: D12 E21 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-dev, nep-mac, nep-mfd and nep-tra
Date: 2008-12
Note: IFM
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Working Paper: Why Are Saving Rates of Urban Households in China Rising? (2007)
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