Precautionary and Entrepreneurial Saving: New Evidence from German Households
Frank M. Fossen
Free University of Berlin (FUB) - Department of Business and Economics; German Institute for Economic Research (DIW Berlin); Institute for the Study of Labor (IZA)
Free University of Berlin (FUB) - Department of Business and Economics; German Institute for Economic Research (DIW Berlin)
DIW Berlin Discussion Paper No. 920
The well-documented positive correlation between income risk and wealth was interpreted as evidence for high amounts of precautionary wealth in various studies. However, the large estimates emerged from pooling non-entrepreneurs and entrepreneurs without controlling for heterogeneity. This paper provides evidence for Germany based on representative panel data including private wealth balance sheets. Entrepreneurs, who face high income risk, hold more wealth than employees, but it is shown that this is not due to precautionary motives. Entrepreneurs may rather save for old age, as they are usually not covered by statutory pension insurance. The analysis accounts for endogeneity of entrepreneurial choice.
Number of Pages in PDF File: 35
Keywords: precautionary saving, precautionary wealth, entrepreneurship
JEL Classification: D91, D12, E21working papers series
Date posted: October 29, 2009
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