DP699 Earnings Uncertainty and Precautionary Saving

Author(s): Luigi Guiso, Tullio Jappelli, Daniele Terlizzese
Publication Date: June 1992
Keyword(s): Earnings Uncertainty, Precautionary Saving
JEL(s): D81, E21
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=699

We test for the presence of precautionary saving using a self-reported measure of earnings uncertainty drawn from the 1989 Italian Survey of Household Income and Wealth. The effect of uncertainty on saving and wealth accumulations is consistent with the theory of precautionary saving and with decreasing prudence. Earnings uncertainty, however, explains only a small fraction of saving and asset accumulation. The results cast doubt on the empirical relevance of precautionary saving as a response to earnings uncertainty, but not on the importance of the precautionary motive per se. Besides earnings uncertainty, other major risks such as health and mortality risks may be important determinants of wealth accumulation.