Income Uncertainty, Precautionary Saving, and Social Insurance

54 Pages Posted: 21 Sep 2022 Last revised: 6 Feb 2024

See all articles by Matthew Joyce

Matthew Joyce

The University of Sydney

Aarti Singh

The University of Sydney - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: Feb 4, 2024

Abstract

Our estimates indicate that 25% of net wealth in Australia and 40-42% of net wealth in the United States is attributed to precautionary savings. Moreover, across the income distribution, we find that low-income households have the highest fraction of their wealth accumulation explained by precautionary motives when asset-based means tests do not restrict access to social insurance programs. When these asset-based means tests are likely to bind for low-income households, these households hold lower levels of precautionary savings. Using a structural life-cycle model, we show that differences in means-tested social insurance programs can qualitatively rationalize our empirical findings on precautionary savings.

Keywords: Precautionary savings, Income uncertainty, heterogeneity

JEL Classification: E21; D91

Suggested Citation

Joyce, Matthew and Singh, Aarti, Income Uncertainty, Precautionary Saving, and Social Insurance (Feb 4, 2024). Available at SSRN: https://ssrn.com/abstract=4193294 or http://dx.doi.org/10.2139/ssrn.4193294

Matthew Joyce

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Aarti Singh (Contact Author)

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
The University of Sydney
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://sydney.edu.au/arts/economics/staff/academic/aarti_singh.shtml

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