Our estimates indicate that 24% of net wealth is attributed to precautionary savings in Australia. Moreover, across the income distribution, we find that low-income households have the highest fraction of their wealth accumulation explained by precautionary motives. These results for Australia...

Precautionary savings occurs in response to uncertainty regarding future income. The precautionary motive to delay consumption and save in the current period rises due to the lack of completeness of insurance markets. Accordingly, individuals will not be able to insure against some bad state of...

Aggregation in the presence of data processing lags distorts the information content of data, violating orthogonality restrictions that hold at the individual level. Though the phenomenon is general, it is illustrated here for the life cycle-permanent model. Cross-section and pooled-panel data...

The objective of this paper is to study when and how much labor supply and savings of heirs respond to inheritances. We estimate fixed effects models following direct heirs, inheriting in 2004, during the years 2000-2008 using Swedish panel data. Our first main result is that the more the heir...

This paper investigates whether there are variants of the permanent income model that are consistent with seasonally unadjusted quarterly postwar Canadian data. The analysis is based on a misspecification-test equation which nests the standard permanent income model. The results obtaineda re...

Over the last three decades, average income for the bottom half of the US distribution increased by 8% while their average saving rate decreased by eight percentage points. Over the same period the US experienced a substantial increase in inequality and a continuous decrease in the aggregate...

This paper studies a continuous-time optimal consumption and portfolio selection problem when an economic agent with recursive utility has stochastic income and liquidity constraints. To tackle this problem, we introduce a transform of the Hamilton-Jacobi-Bellman equation into a free boundary...

The Dutch mandatory pension system consists of two parts: a public pay-as-you-go part that provides a minimum income to all Dutch inhabitants over age 64; and an occupation-specific capital-funded part that provides supplementary retirement income. The goal of this paper is to test for the effect...

We analyse life-cycle saving decisions when households use simple heuristics, or rules of thumb, rather than solve the underlying intertemporal optimization problem. We simulate life-cycle saving decisions using three simple rules and compute utility losses relative to the solution of the...

Over the last three decades, average income for the bottom half of the US distribution increased by 8% while their average saving rate decreased by eight percentage points. Over the same period the US experienced a substantial increase in inequality and a continuous decrease in the aggregate...