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Saving Motives over the Life-Cycle

Pashchenko, Svetlana and Porapakkarm, Ponpoje (2020): Saving Motives over the Life-Cycle.

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Abstract

A major challenge in the study of saving behavior is how to disentangle different motives for saving. We approach this question in the context of an entire life-cycle model. Specifically, we identify the importance of different saving motives by simultaneously accounting for wealth accumulation during working period, wealth decumulation during retirement, and labor supply behavior. We show that exploiting all of these data features can sharpen our identification, thus complementing previous studies that focus only on wealth accumulation or decumulation. We calibrate our model using several micro datasets and use the estimated model to evaluate the contribution of life-cycle, bequest, and precautionary motives to total savings. We also emphasize the importance of accounting for state-contingent assets when analyzing the precautionary saving motive.

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