The One-Child Policy and Household Savings

64 Pages Posted: 16 Oct 2013

See all articles by Taha Choukhmane

Taha Choukhmane

Sciences Po

Nicholas Coeurdacier

Sciences Po

Keyu Jin

London School of Economics & Political Science (LSE)

Date Written: October 2013

Abstract

We ask how much the advent of the `one child policy' can explain the sharp rise in China's household saving rate. In a life-cycle model with endogenous fertility, intergenerational transfers and human capital accumulation, we show a macroeconomic and a microeconomic channel through which restrictions in fertility raise aggregate saving. The macro-channel operates through a shift in the composition of demographics and income across generations. The micro-channel alters saving behaviour and education decisions at the individual level. A main objective is to quantify these various channels in the data. Exploiting the birth of twins as an identification strategy, we provide direct empirical evidence on the micro-channel and show its quantitative relevance in accounting for the rise in the household saving rate since the inception of the policy in 1980. Our quantitative OLG model can explain from a third to at most 60% of the rise in aggregate saving rate; equally important is its implied shift in the level and shape of the age-saving profile consistent with micro-level estimates from the data.

Keywords: Fertility, Intergenerational transfers, Life Cycle Consumption/Savings

JEL Classification: D10, D91, E21

Suggested Citation

Choukhmane, Taha and Coeurdacier, Nicholas and Jin, Keyu, The One-Child Policy and Household Savings (October 2013). CEPR Discussion Paper No. DP9688. Available at SSRN: https://ssrn.com/abstract=2341051

Taha Choukhmane (Contact Author)

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

Nicholas Coeurdacier

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

Keyu Jin

London School of Economics & Political Science (LSE) ( email )

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