TY  - JOUR
AU  - Hubbard,R. Glenn
AU  - Skinner,Jonathan
AU  - Zeldes,Stephen P.
TI  - Precautionary Saving and Social Insurance
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4884
PY  - 1995
Y2  - May 1995
UR  - http://www.nber.org/papers/w4884
L1  - http://www.nber.org/papers/w4884.pdf
N1  - Author contact info:
R. Glenn Hubbard
Graduate School of Business
Columbia University, 101 Uris Hall
3022 Broadway
New York, NY  10027
Tel: 212/854-3493
Fax: 212/864-6184
E-Mail: rgh1@columbia.edu, ws2187@columbia.edu

Jonathan S. Skinner
Department of Economics
6106 Rockefeller Hall
Dartmouth College
Hanover, NH 03755
Tel: 603/646-2535
Fax: 603/646-2122
E-Mail: jonathan.skinner@dartmouth.edu

Stephen P. Zeldes
Graduate School of Business
Columbia University
3022 Broadway, Uris 825
New York, NY 10027-6902
Tel: 212/854-2492
Fax: 212/208-4699
E-Mail: stephen.zeldes@columbia.edu
AB  - Microdata studies of household saving often find a significant group in the population with virtually no wealth, raising concerns about heterogeneity in motives for saving.  In particular, this heterogeneity has been interpreted as evidence against the life-cycle model of saving.  This paper argues that a life-cycle model can replicate observed patterns in household wealth accumulation after accounting explicitly for precautionary saving and asset-based means- tested social insurance.  We demonstrate theoretically that social insurance programs with means tests based on assets discourage saving by households with low expected lifetime income.  In addition, we evaluate the model using a dynamic programming model with four state variables.  Assuming common preference parameters across lifetime- income groups, we are able to replicate the empirical pattern that low-income households are more likely than high-income households to hold virtually no wealth.  Low wealth accumulation can be explained as a utility-maximizing response to asset-based means-tested welfare programs.
ER  -