Income Uncertainty and Household Savings in China
IMF Working Papers, December 1, 2010
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- Income Uncertainty and Household Savings in China
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Bibliographic details
- Authors: Kai Liu, Marcos Chamon, Eswar S Prasad
- Published: December 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455211708.001
Summary findings
- China’s household saving rate has increased markedly since the mid-1990s and the age-savings profile has become U-shaped.
- Rising income uncertainty and pension reforms help explain both the increase in the household saving rate and the emergence of a U-shaped age-savings profile.
- Strong average income growth over the period 1989-2006 was accompanied by a substantial increase in income uncertainty.
- The permanent variance of household income remains stable while the transitory variance rises sharply.
- A calibration of a buffer-stock savings model indicates:
- Rising savings rates among younger households are consistent with rising income uncertainty.
- Higher saving rates among older households are consistent with a decline in the pension replacement ratio for those retiring after 1997.
- 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-profile of savings.
Data and methods
- Empirical analysis uses a panel of Chinese households covering the period 1989-2006.
- Identification of income risk distinguishes permanent variance and transitory variance of household income.
- Quantitative assessment is based on a calibration of a buffer-stock savings model.
Key statistics and publication metadata
- Period analyzed: 1989-2006
- Finding on explanatory power: account for over half of the increase in the urban household savings rate since the mid-1990s
- Pages: 34
- Series: Working Paper No. 2010/289
- Issue: 289
- Volume: 2010
- DOI: https://doi.org/10.5089/9781455211708.001
- ISBN: 9781455211708
- ISSN: 1018-5941
- Authors: Kai Liu, Marcos Chamon, Eswar S Prasad
- Publication date: December 1, 2010
Subjects and keywords
- Subject: Expenditure, Income, Income shocks, Labor, National accounts, Pension reform, Pensions, Wages
- Keywords: age-savings profile; buffer-stock savings; China; household income; household savings; Income; Income shocks; income uncertainty; Pension reform; pension reforms; Pensions; replacement ratio; retirement saving; saving behavior; saving rate; savings model; Wages; WP
Conclusions and implications
- Policy and structural changes affecting income risk and pension replacement ratios have important implications for aggregate saving behavior and the age profile of savings in China.
- The combination of rising transitory income risk and reforms that lowered pension replacement ratios for cohorts retiring after 1997 can jointly explain a large portion of the rise in urban household savings and the U-shaped age-savings profile.
Source: IMF Working Paper "Income Uncertainty and Household Savings in China" by Kai Liu, Marcos Chamon, and Eswar S Prasad (December 1, 2010), Working Paper No. 2010/289.