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Income Uncertainty and Household Savings in China, Kai Liu, Marcos Chamon, Eswar Prasad

China’s household saving rate has increased markedly since the mid-1990s and the age-savings profile has become U-shaped. We find that rising income uncertainty and pension reforms help explain both of these phenomena. Using a panel of Chinese households covering the period 1989-2006, we document that strong average income growth has been accompanied by a substantial increase in income uncertainty. Interestingly, the permanent variance of household income remains stable while it is the transitory variance that rises sharply. A calibration of a buffer-stock savings model indicates that rising savings rates among younger households are consistent with rising income uncertainty and higher saving rates among older households are consistent with a decline in the pension replacement ratio for those retiring after 1997. We conclude that rising income uncertainty and pension reforms can account for over half of the increase in the urban household savings rate in China since the mid-1990s as well as the U-shaped age-profile of savings
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; Figure 1. Household Saving Rates; Figure 2. Gross Saving Rates by Sector; Figure 3. Urban Household Saving Rates by Age of Household Head; II. Dataset; Table 1. Summary Statistics; III. A Decomposition of Permanent and Transitory Shocks to Labor Income; IV. Earnings Decomposition Results; Table 2. Estimated Variance of Permanent and Transitory Shocks to Urban Household Income; Figure 4. Labor Market Turnover: Annualized Transition Probabilities; V. Implications of the Shifts in Labor Income Variance for Precautionary Savings
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (58 p.)
Specific Material Designation
Form Of Item

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