skip to content

Faculty of Economics

Journal Cover

Chamon, M., Liu, K. and Prasad, E.

Income uncertainty and household savings in China

Journal of Development Economics

Vol. 105 pp. 164-177 (2013)

Abstract: China's urban household saving rate has increased markedly since the mid-1990s and the age-savings profile has become U-shaped. To understand these patterns, we analyze a panel of urban Chinese households over the period 1989–2009. We document a sharp increase in income uncertainty, largely due to an increase in the variance in household income attributed to transitory idiosyncratic shocks. We then calibrate a buffer-stock savings model to obtain quantitative estimates of the impact of rising household-specific income uncertainty as well as another shock to household income—the pension reforms that were instituted in the late 1990s. Our calibrations suggest that rising income uncertainty and pension reforms lead younger and older households, respectively, to raise their saving rates significantly. These two factors account for two-thirds of the increase in China's urban household saving rate and the U-shaped age-savings profile.

Keywords: China, Household savings, Income uncertainty, Pension reforms, Buffer-stock savings

JEL Codes: D91, J30, E21

Author links: Kai Liu  

Publisher's Link:

Papers and Publications

Recent Publications

Jochmans, K., and Weidner, M. Fixed-Effect Regressions on Network Data Econometrica [2019]

Elliott, M. and Golub, B. A Network Approach to Public Goods Journal of Political Economy [2019]

Aidt, T. S. and Franck, R. What motivates and oligarchic elite to democratize? Evidence from the roll call vote on the Great Reform Act of 1832 Journal of Economic History [2019]

Linton, O. and Xiao, Z. Efficient estimation of nonparametric regression in the presence of dynamic heteroskedasticity Journal of Econometrics [2019]