SUBJECTIVE INCOME RISK AND PRECAUTIONARY SAVING

Mario Tirelli () and Stefano Castaldo ()
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Stefano Castaldo: University of Padua

No 267, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: Econometric studies have produced conflicting results on the relevance of precautionary saving. This ambiguity has been often ascribed to i) the difficulty of measuring key variables, like households’ subjective risk in income and permanent income; ii) the occurrence of certain kinds of endogeneity bias associated to the unobservability of individual characteristics, like preferences and trade opportunities. In the present work we investigate these estimation problems exploiting a particular wave of the Italian Survey of Household Income and Wealth which contains both type of information. Our results quantify the average precautionary saving as 4-6 percent of total net wealth. Robustness check are carried out considering two more liquid measures of wealth, and alternative sample definitions. Finally, we use our data set to assess the relevance of the endogeneity bias related to the omission of preference characteristics, like patience and risk-aversion, and of indicators of the households’ insurance possibilities, like those signaling the presence of various forms of liquidity and credit constraints.

Keywords: Precautionary saving; wealth accumulation; preferences; liquidity constraints; credit constraints (search for similar items in EconPapers)
JEL-codes: C21 D12 D91 (search for similar items in EconPapers)
Pages: 36
Date: 2022
New Economics Papers: this item is included in nep-ban and nep-eur
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Related works:
Journal Article: Subjective income risk and precautionary saving (2025)
Working Paper: Subjective income risk and precautionary saving (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0267

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