Precautionary and Entrepreneurial Saving: New Evidence from German Households

35 Pages Posted: 29 Oct 2009

See all articles by Frank M. Fossen

Frank M. Fossen

University of Nevada, Reno; IZA Institute of Labor Economics

Davud Rostam‐Afschar

University of Mannheim; IZA Institute of Labor Economics; Global Labor Organization; TRR 266 Accounting for Transparency

Date Written: September 2009

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.

Keywords: precautionary saving, precautionary wealth, entrepreneurship

JEL Classification: D91, D12, E21

Suggested Citation

Fossen, Frank M. and Rostam-Afschar, Davud, Precautionary and Entrepreneurial Saving: New Evidence from German Households (September 2009). DIW Berlin Discussion Paper No. 920, Available at SSRN: https://ssrn.com/abstract=1494985 or http://dx.doi.org/10.2139/ssrn.1494985

Frank M. Fossen (Contact Author)

University of Nevada, Reno ( email )

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IZA Institute of Labor Economics

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Davud Rostam-Afschar

University of Mannheim ( email )

L 7, 3-5
Mannheim, 68161
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Global Labor Organization ( email )

Collogne
Germany

TRR 266 Accounting for Transparency ( email )

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Paderborn, 33098
Germany

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