Income Uncertainty, Precautionary Saving, and Social Insurance
36 Pages Posted: 29 Aug 2022
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Income Uncertainty, Precautionary Saving, and Social Insurance
Abstract
Our estimates indicate that 24% of net wealth is attributed to precautionary savings in Australia. Moreover, across the income distribution, we find that low-income households have the highest fraction of their wealth accumulation explained by precautionary motives. These results for Australia are at odds with the estimates of precautionary wealth in the United States where related studies find that low-income households hold low levels of precautionary savings. Using a simple theoretical model, we show that differences in means-tested social insurance programs can rationalize these large differences in our empirical results.
Keywords: Precautionary savings, Income uncertainty, heterogeneity
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