Savings decisions under life-time and earnings uncertainty : empirical evidence from West German household data

Rodepeter, Ralf ; Winter, Joachim

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URN: urn:nbn:de:bsz:180-madoc-28627
Document Type: Working paper
Year of publication: 1998
The title of a journal, publication series: None
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: JEL: D91 ,
Subject headings (SWD): Deutschland , Sparen , Lebensdauer , Einkommenshypothese , Risiko , Schätzung
Keywords (English): savings , life-cycle models , income uncertainty , life-time uncertainty
Abstract: We analyze a model of life-cycle savings decisions which allows for both life-time and income uncertainty. We then simulate life-cycle saving rates based on empirical income processes estimated from West German household data. Our main findings are, first, that allowing for mortality risk improves the life-cycle model's predictions slightly, and second, that simulated saving rates still fail to match their empirical counterparts. While our model correctly predicts differential peak saving rates during working life for three household types that face different income processes, it cannot explain an important salient feature of saving in Germany: Empirically, there is almost no post-retirement dissaving, while our life-cycle model predicts substantial dissaving even though we control for the generous German pension system which results in relatively high post-retirement income.
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