Working Paper: NBER ID: w20527
Authors: Horag Choi; Steven Lugauer; Nelson C. Mark
Abstract: We employ a model of precautionary saving to study why household saving rates are so high in China and so low in the US. The use of recursive preferences gives a convenient decomposition of saving into precautionary and non precautionary components. This decomposition indicates that over 80 percent of China's saving rate and nearly all of the US saving arises from the precautionary motive. The difference in the income growth rate between China and the US is vastly more important for explaining saving rate differences than differences in income risk. We estimate the preference parameters and find that Chinese and US households are more similar in their attitude toward risk than in their intertemporal substitutability of consumption.
Keywords: precautionary saving; household saving rates; China; US
JEL Codes: E21; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income growth rate difference between China and the US (F62) | High household saving rate in China (D14) |
| High household saving rate in China (D14) | Lower saving rate in the US (E21) |
| Risk attitudes (D81) | Saving behaviors (D14) |