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Estimating the Effect of the One-Child Policy on Chinese Household Savings: Evidence from an Oaxaca Decomposition

Zhongchen Song, Tom Coupé () and W. Reed ()
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Tom Coupé: University of Canterbury, https://www.canterbury.ac.nz

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: Researchers have long puzzled over China’s high household savings rate. Some have hypothesized that the explanation lies with China’s One-Child Policy (OCP). According to this hypothesis, faced with fewer children to support them in their old age, Chinese parents increased their savings to finance retirement. Previous research relied on empirical studies of the relationship between children and saving behavior. However, all of these studies based their analysis on data after the OCP was implemented. Their implicit counterfactual for China without an OCP was households with multiple children living in an OCP environment. In contrast, we compare Chinese people with people from regions that do not have restrictive population policies. These regions share many cultural, demographic and economic characteristics with China that suggest they can be used as a counterfactual for China. This approach enables us to employ a Blinder-Oaxaca decomposition procedure to identify the different channels by which children could affect savings. Our results suggest that the OCP decreased households’ proclivity to save. The estimated effects are generally small, in the range of one to two percentage points. We find no evidence to indicate that the OCP can explain China’s high saving rate. An implication of our findings is that they suggest that the recent relaxation of the OCP cannot be counted upon to substantially boost Chinese consumption.

Keywords: China; One-Child Policy; Savings rate; Demographics; Blinder-Oaxaca decomposition (search for similar items in EconPapers)
JEL-codes: D14 E21 J13 J18 O10 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2020-08-01
New Economics Papers: this item is included in nep-cna, nep-mac and nep-tra
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