The Chinese saving puzzle and the life-cycle hypothesis: A revaluation

Chi-Chur Chao (), Jean-Pierre Laffargue () and Eden Yu
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Chi-Chur Chao: CUHK - The Chinese University of Hong Kong [Hong Kong]
Jean-Pierre Laffargue: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: In a stimulating paper, Modigliani and Cao (2004) concluded that most of the huge increase in the household saving rate in China since 1975, the 'Chinese saving puzzle', can be explained by the life-cycle hypothesis. Their analysis is based on the estimation of reduced form equations. However, a structural model of their hypothesis would impose constraints on these equations. For not taking them into account, their test of the life-cycle hypothesis lacks power. In this paper, we develop a structural model of household saving behavior based on the lifecycle hypothesis for the Chinese economy. We find that the life-cycle hypothesis can explain only 35% of the surge of the Chinese household saving. We then add to the model the strong motivation of young adults for buying a home and the financial support they receive from their parent for that. In this way, the model can reproduce the high and increasing level of saving since the mid-nineties. Nonetheless the increase in household saving, which took place during the eighties, may not be explained by the life-cycle hypothesis.

Keywords: Life-cycle; Household saving; China (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (23)

Published in China Economic Review, 2011, 22 (1), pp.108-120. ⟨10.1016/j.chieco.2010.09.004⟩

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Related works:
Journal Article: The Chinese saving puzzle and the life-cycle hypothesis: A revaluation (2011)
Working Paper: The Chinese saving puzzle and the life-cycle hypothesis: A revaluation (2011)
Working Paper: The Chinese saving puzzle and the life-cycle hypothesis: A revaluation (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:hal-00645288

DOI: 10.1016/j.chieco.2010.09.004

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