Income Uncertainty, Precautionary Saving, and Social Insurance
54 Pages Posted: 21 Sep 2022 Last revised: 6 Feb 2024
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Income Uncertainty, Precautionary Saving, and Social Insurance
Income Uncertainty, Precautionary Saving, and Social Insurance
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: Suggested Citation