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Author: Kazarosian, Mark Vahram
Resulting in 2 citations.
1. Kazarosian, Mark Vahram
Precautionary Savings - A Panel Study
Ph.D. Dissertation, Boston College, 1991
Cohort(s): Older Men
Publisher: UMI - University Microfilms, Bell and Howell Information and Learning
Keyword(s): Assets; Income; Life Cycle Research; Occupations; Wealth

This dissertation is an empirical exploration of precautionary savings. Knowing the extent of the precautionary motive is important for gauging the responsiveness of saving to government programs that reduce income uncertainty. Unemployment compensation, welfare, and advance notices of plant closings may reduce personal savings by curbing income risk but it is also important to determine the strength of the precautionary motive relative to other motives, such as bequests or saving for retirement. Empirical evidence about precautionary savings sheds light on the nature of consumer preferences and attitudes toward risk. The main innovation of this study is that it estimates asset accumulation using measures of the individual's income uncertainty and permanent income from panel data. Using longitudinal data in a pooled cross-sectional, time-series framework makes these measures possible because actual income movements over time are observed for each individual. The data are from the Older Men cohort of the NLS. The author models permanent income as the individual's position, at a standardized age, on his age-income profile. The author proxies uncertainty using the standard deviation of the error of each individual's estimated log-income/age profile. This measure controls for the individual's income growth rate so that the proxy reflects income uncertainty, rather than both predictable changes in human capital and income uncertainty. Findings are as follows: (1) Uncertainty has a substantial effect on asset accumulation. A doubling of uncertainty is associated with a 53% increase in asset accumulation. (2) The strength of the precautionary motive depends on occupation, most likely due to differences in risk preferences. (3) The intent to leave a bequest has no significant effect on asset accumulation as a proportion of permanent income. (4) The estimates support the life-cycle prediction of the hump-shaped profile of asset accumulation, and predict a wealth to permanent income ratio peak at age 57.
Bibliography Citation
Kazarosian, Mark Vahram. Precautionary Savings - A Panel Study. Ph.D. Dissertation, Boston College, 1991.
2. Kazarosian, Mark Vahram
Precautionary Savings--A Panel Study
Review of Economics and Statistics 79,2 (May 1997): 241-247.
Cohort(s): Older Men
Publisher: Harvard University Press
Keyword(s): Government Regulation; Income Dynamics/Shocks; Retirement/Retirement Planning; Savings

Permission to reprint the abstract has not been received from the publisher.

Theoretical literature shows that income uncertainty boosts saving, yet empirical work is incomplete. The precautionary motive for saving is tested for by using panel data. Knowing this motive's size is important for gauging the responsiveness of saving to government programs that reduce uncertainty, and for comparison to other motives, such as bequests. Most empirical studies of precautionary saving use either aggregate time-series or cross-sectional data, which cannot capture the effects of individual income uncertainty. Measures of total, permanent, and transitory income uncertainty are derived from panel data - the National Longitudinal Survey - and a strong precautionary motive is found. A doubling of uncertainty increases the ratio of wealth to permanent income by 29%. Photocopy available from ABI/INFORM.
Bibliography Citation
Kazarosian, Mark Vahram. "Precautionary Savings--A Panel Study." Review of Economics and Statistics 79,2 (May 1997): 241-247.