Income Uncertainty and Wealth Accumulation: How Precautionary are Taiwanese Households? *

To assess how recent job loss impacts wealth accumulation of Taiwanese households, the present study investigates the empirical relevance of the precautionary saving motive to explain measures of wealth during the past 2 decades. This study demonstrates that households facing increased transitory shock accumulate increased amounts of financial and housing wealth, whereas permanent shocks cause households to accumulate housing wealth only. Empirical results suggest an important policy implication: households in Taiwan will save less when social insurance policies are effective in reducing future transitory and permanent shocks to household income. Copyright 2007 The AuthorJournal compilation 2007 East Asian Economic Association and Blackwell Publishing Ltd. .