Savings Rates
Italian oddities

Italy has one of the highest savings rates in the OECD, although it has declined by much more than in other OECD countries since 1960; Italy's savings and growth are also more strongly correlated than those of other countries at comparable stages of development. In Discussion Paper No. 572, Luigi Guiso, Research Affiliate Tullio Jappelli and Daniele Terlizzese argue that standard theories of consumption that focus principally on differences in growth cannot explain these facts, and they instead examine the interaction of growth with the relatively underdeveloped Italian capital markets.
Consumer credit and mortgages in Italy are characterized by high interest rate spreads and high down-payments, while interest payments are only partially tax deductible. The Italian owner occupation rate is nevertheless comparable to those of other OECD countries, which indicates that Italians must save relatively more to buy houses. Regulation and barriers to entry also limit competition in the Italian insurance market, which is between a third and a fifth of the size of those in most other OECD countries, which suggests that Italians have a high propensity to engage in precautionary saving.
Guiso, Jappelli and Terlizzese assess the effects of uncertainty by applying standard excess sensitivity tests to time-series and panel data. In both cases they find a higher excess sensitivity of consumption to expected income fluctuations in Italy than elsewhere. They also assess the effects of mortgage market imperfections on saving by estimating the gap between desired and actual saving for renters. Correcting for selection bias, demographic factors and permanent income, they find that renters save approximately 15% more of their income than they would if they were owners. Further, removing mortgage market imperfections would reduce the average Italian savings rate by 2-3%. They also test for the presence of precautionary saving and find that savings decline with wealth, although the overall impact of this uncertainty is small. This may be because income risk is only one of the several risks that households face and also because households that are obliged to accumulate substantial wealth have little need for precautionary savings.
They find no evidence to support other suggested explanations of Italy's unique savings behaviour based on the earnings profile, government transfers, demographics and bequest motives, and they conclude that its peculiarities stem from the structure of its capital markets. These results suggest that the increased competition in Italian financial markets associated with financial deregulation and European integration will stimulate the convergence of the Italian savings rate towards those of the other major industrial countries.

Why is Italy's Savings Rate so High?
Luigi Guiso, Tullio Jappelli and Daniele Terlizzese

Discussion Paper No. 572, August 1991 (IM)