Precautionary savings motive in a volatile economy: Evidence from Argentine Administrative Data
The precautionary saving hypothesis implies that consumers save to protect themselves against labour income volatility. Evidence on this mechanism in emerging economies is scant and is often limited to aggregate cross-country data. We study the effect of labour income uncertainty on saving using a long panel of individual-level salary data from Argentina. We extend a standard model of individual labour income to accommodate multiple sectors of the economy. Using this model and the salary data, we estimate labour income volatility across sectors. We then estimate its effect on savings using district-level data on bank deposits and a spatial dynamic panel model. We find that labour income volatility has a modest positive effect on savings. The spatial model indicates that most of this effect arises from spatial spillovers from nearby districts.
With Juan Zurita.