TY  - JOUR
AU  - Chamon,Marcos
AU  - Liu,Kai
AU  - Prasad,Eswar S.
TI  - Income Uncertainty and Household Savings in China
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16565
PY  - 2010
Y2  - December 2010
UR  - http://www.nber.org/papers/w16565
L1  - http://www.nber.org/papers/w16565.pdf
N1  - Author contact info:
Marcos Chamon
Research Department
International Monetary Fund
HQ1-09-612
700 19th Street, N.W.
Washington DC, 20431
E-Mail: MCHAMON@imf.org

Kai Liu
Norwegian School of Economics
Department of Economics
Helleveien 30, NO-5045 Bergen
Norway
E-Mail: kai.liu@nhh.no

Eswar S. Prasad
Dyson School of Applied Economics and
Management
Cornell University
440 Warren Hall
Ithaca, NY 14853
Tel: 607/255-5687
Fax: 607/255-9984
E-Mail: eswar.prasad@cornell.edu
AB  - China’s household saving rate has increased markedly since the mid-1990s and the age-savings profile has become U-shaped during the 2000s. We find that rising income uncertainty and pension reforms help explain both of these phenomena. Using a panel of Chinese households covering the period 1989-2006, we document that strong average income growth has been accompanied by a substantial increase in income uncertainty. Interestingly, the permanent variance of household income remains stable while it is the transitory variance that rises sharply. A calibration of a buffer-stock savings model indicates that rising savings rates among younger households are consistent with rising income uncertainty and higher saving rates among older households are consistent with a decline in the pension replacement ratio for those retiring after 1997. We conclude that rising income uncertainty and pension reforms can account for over half of the increase in the urban household savings rate in China since the mid-1990s as well as the U-shaped age-saving profile.
ER  -