Income uncertainty, precautionary wealth, and social insurance

Matthew Joyce and Aarti Singh

European Economic Review, 2025, vol. 175, issue C

Abstract: Our estimates suggest that across the income distribution, households in the lowest income quintile face greater income risk and accumulate more precautionary wealth than those in the second-lowest income quintile in both Australian and later United States samples. In the earlier sample from United States, the lowest income quintile similarly experiences higher income risk, but contrary to later patterns, holds lower levels of precautionary wealth. Notably, for this earlier PSID sample period only, we find a negative correlation between wealth and participation in means tested programs. Using a structural life-cycle model, we demonstrate that changing the asset limit in means tested social insurance programs can potentially explain these suggestive differences in precautionary wealth among low-income households.

Keywords: Precautionary savings; Income uncertainty; Means tested social insurance (search for similar items in EconPapers)
JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:175:y:2025:i:c:s0014292125000534

DOI: 10.1016/j.euroecorev.2025.105003

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