Working Paper: CEPR ID: DP699
Authors: Luigi Guiso; Tullio Jappelli; Daniele Terlizzese
Abstract: We test for the presence of precautionary saving using a self-reported measure of earnings uncertainty drawn from the 1989 Italian Survey of Household Income and Wealth. The effect of uncertainty on saving and wealth accumulations is consistent with the theory of precautionary saving and with decreasing prudence. Earnings uncertainty, however, explains only a small fraction of saving and asset accumulation. The results cast doubt on the empirical relevance of precautionary saving as a response to earnings uncertainty, but not on the importance of the precautionary motive per se. Besides earnings uncertainty, other major risks such as health and mortality risks may be important determinants of wealth accumulation.
Keywords: precautionary saving; earnings uncertainty
JEL Codes: D91; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| subjective earnings uncertainty (D89) | saving behavior (D14) |
| variance of income shocks (D89) | consumption (E21) |
| subjective earnings uncertainty (D89) | precautionary saving (D14) |
| individual wealth (D31) | effect of earnings uncertainty on consumption (D11) |
| earnings uncertainty (D89) | saving and asset accumulation (D14) |
| health and mortality risks (I12) | wealth accumulation (E21) |