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Precautionary and Entrepreneurial Saving: New Evidence from German HouseholdsFrank M. FossenFree University of Berlin (FUB) - Department of Business and Economics; German Institute for Economic Research (DIW Berlin); Institute for the Study of Labor (IZA) Davud Rostam-AfscharFree University of Berlin (FUB) - Department of Business and Economics; German Institute for Economic Research (DIW Berlin) September 2009 DIW Berlin Discussion Paper No. 920 Abstract: 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, E21 working papers seriesDate posted: October 29, 2009Suggested CitationContact Information
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