Policy Uncertainty and Precautionary Savings
38 Pages Posted: 4 Apr 2008 Last revised: 5 Jan 2022
There are 2 versions of this paper
Policy Uncertainty and Precautionary Savings
Policy Uncertainty and Precautionary Savings
Date Written: April 2008
Abstract
In 1997 Chancellor Kohl proposed a major pension reform and pushed the law through Parliament explaining that the German PAYG system had become unsustainable. One limitation of the new law -- one that is crucial for our identification strategy -- is that it left the generous pension entitlements of civil servants intact. The year after, in 1998, Kohl lost the elections and was replaced by Gerhard Shroeder. One of the first decisions of the new Chancellor was to revoke the 1997 pension reform. We use the quasi-experiment of the adoption and subsequent revocation of the pension reform to study how households reacted to the increase in uncertainty about the future path of income that such an event produced. Our estimates are obtained from a diff-in-diff estimator: this helps us overcome the identification problem that often affects measures of precautionary saving. Departing from the majority of studies on precautionary saving we also analyze households' response in terms of labor market choices: we find evidence of a labor supply response by those workers who can use the margin offered by part-time employment
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
A Theory of the Consumption Function, with and Without Liquidity Constraints (Expanded Version)
-
Disentangling the Importance of the Precautionary Saving Motive
-
Disentangling the Importance of the Precautionary Saving Mode
-
Unemployment Insurance and Precautionary Saving
By Eric M. Engen and Jonathan Gruber
-
Precautionary Savings and Self-Selection - Evidence from the German Reunification 'Experiment'