Income uncertainty and household savings in China

Marcos Chamon (), Kai Liu and Eswar Prasad

Journal of Development Economics, 2013, vol. 105, issue C, 164-177

Abstract: China's urban household saving rate has increased markedly since the mid-1990s and the age-savings profile has become U-shaped. To understand these patterns, we analyze a panel of urban Chinese households over the period 1989–2009. We document a sharp increase in income uncertainty, largely due to an increase in the variance in household income attributed to transitory idiosyncratic shocks. We then calibrate a buffer-stock savings model to obtain quantitative estimates of the impact of rising household-specific income uncertainty as well as another shock to household income—the pension reforms that were instituted in the late 1990s. Our calibrations suggest that rising income uncertainty and pension reforms lead younger and older households, respectively, to raise their saving rates significantly. These two factors account for two-thirds of the increase in China's urban household saving rate and the U-shaped age-savings profile.

Keywords: China; Household savings; Income uncertainty; Pension reforms; Buffer-stock savings (search for similar items in EconPapers)
JEL-codes: D91 E21 J3 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (97)

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Related works:
Working Paper: Income Uncertainty and Household Savings in China (2010)
Working Paper: Income Uncertainty and Household Savings in China (2010)
Working Paper: Income Uncertainty and Household Savings in China (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:105:y:2013:i:c:p:164-177

DOI: 10.1016/j.jdeveco.2013.07.014

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