Working Paper: NBER ID: w29856
Authors: Scott R. Baker; Efraim Benmelech; Zhishu Yang; Qi Zhang
Abstract: China’s high household savings rate has attracted great academic interest but remains a puzzle. Potential explanations include demographic, policy, and financial causes. Yet a lack of reliable microlevel data on household finances makes it difficult to assess the relative importance of each factor. This paper uses individual income and spending transactions linked to demographic characteristics and financial information on loan applications and credit availability from a large Chinese bank in Inner Mongolia. We match a large subset of bank customers to administrative records covering marriage and births and obtain a unique view into consumption and saving patterns around important life events. Our results point toward identifying income growth, financial instability, and credit access, rather than such directives as the one-child policy, as the primary causes of high levels of savings among Chinese households.
Keywords: household savings; China; two-child policy; financial behavior; income volatility
JEL Codes: D14; D31; E21; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial volatility (G19) | increase in savings rates (D14) |
| income volatility (D31) | increase in savings rates (D14) |
| access to consumer credit (G21) | increase in savings rates (D14) |
| loosening of the one-child policy (J13) | increase in savings rates (D14) |
| fewer childcare expenses (J13) | increase in savings rates (D14) |
| reduction in intergenerational transfers (D15) | decrease in savings rates (D14) |
| financial instability and credit access (F65) | increase in savings rates (D14) |