NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Precautionary Saving of Chinese and U.S. Households

Horag Choi, Steven Lugauer, Nelson C. Mark

NBER Working Paper No. 20527
Issued in September 2014
NBER Program(s):   DEV   IFM   ME

We employ a model of precautionary saving to study why household saving rates are so high in China and so low in the US. The use of recursive preferences gives a convenient decomposition of saving into precautionary and non precautionary components. This decomposition indicates that over 80 percent of China's saving rate and nearly all of the US saving arises from the precautionary motive. The difference in the income growth rate between China and the US is vastly more important for explaining saving rate differences than differences in income risk. We estimate the preference parameters and find that Chinese and US households are more similar in their attitude toward risk than in their intertemporal substitutability of consumption.

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Document Object Identifier (DOI): 10.3386/w20527

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