A Direct Test of the Buffer Stock Model of Saving

40 Pages Posted: 6 Jun 2008

See all articles by Tullio Jappelli

Tullio Jappelli

University of Naples Federico II - Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Center for Studies in Economics and Finance - CSEF

Mario Padula

University "Ca' Foscari" of Venice; CSEF

Luigi Pistaferri

Stanford University; Centre for Economic Policy Research (CEPR)

Date Written: November 2007

Abstract

Recent models with liquidity constraints and impatience emphasize that consumers use savings to buffer income fluctuations. When wealth is below an optimal target, consumers try to increase their buffer stock of wealth by saving more. When it is above target, they increase consumption. This important implication of the buffer stock model of saving has not been subject to direct empirical testing. We derive from the model an appropriate theoretical restriction and test it using data on working-age individuals drawn from the 2002 and 2004 Italian Surveys of Household Income and Wealth. One of the most appealing features of the survey is that it has data on the amount of wealth held for precautionary purposes, which we interpret as target wealth in a buffer stock model. The test results do not support buffer stock behaviour, even among population groups that are more likely, a priori, to display such behaviour. The saving behaviour of young households is instead consistent with models in which impatience, relative to prudence, is not as high as in buffer stock models.

Keywords: Buffer Stock Model, Intertemporal Choice, Precautionary Saving

JEL Classification: D91

Suggested Citation

Jappelli, Tullio and Padula, Mario and Pistaferri, Luigi, A Direct Test of the Buffer Stock Model of Saving (November 2007). CEPR Discussion Paper No. DP6576. Available at SSRN: https://ssrn.com/abstract=1140103

Tullio Jappelli (Contact Author)

University of Naples Federico II - Department of Economics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=106354

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Center for Studies in Economics and Finance - CSEF

84084 Fisciano, Salerno
Italy
+39 089 963 165 (Phone)
+39 089 963 169 (Fax)

HOME PAGE: http://www.csef.it/people/jappelli.htm

Mario Padula

University "Ca' Foscari" of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy
+390412349181 (Phone)
+390412349176 (Fax)

CSEF

Via Don Melillo I
Fisciano, Salerno, 84084
Italy

Luigi Pistaferri

Stanford University ( email )

Stanford, CA 94305
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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