Time preference and savings behaviour

Yoonseok Choi and Jong-soo Han

Applied Economics Letters, 2018, vol. 25, issue 14, 994-997

Abstract: A number of studies have examined various determinants of savings rate. This article contributes to this literature by empirically testing whether the time preference (discounting behaviour) is another important determinant of savings rate. To this end, we estimate the hyperbolic Euler equation using the generalized method of moments (GMM) to examine whether the short-run discount factor can account for savings behaviour. The empirical results show that people exhibit short-run patience (impatience) when savings rate increases (decreases), which is in line with the theoretical prediction. This result implies that the time preference also plays an important role in determining savings behaviour. Various sets of instruments and different sample periods do not reverse the main finding.

Date: 2018
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DOI: 10.1080/13504851.2017.1391989

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