Are Consumption Taxes Regressive?

It is often argued that a general consumption tax is necessarily regressive, particularly because households with high incomes typically save relatively more than those with low incomes. This paper uses very simple tax models to examine the combination of income and consumption taxes. It suggests that it is preferable to consider the overall impact of all taxes and transfers rather than relating payments of a single tax to gross income, instead of the relevant tax base. Insofar as savings might be relevant, attention should be given to the income tax treatment of investment income.     

The surprisingly low importance of income uncertainty for precaution

While it is common to use income uncertainty to explain household saving decisions, there is much disagreement about the importance of precautionary saving. This paper suggests that income uncertainty is not an important motive for saving, although households do have other precautionary reasons to save. Using a question from the Survey of Consumer Finances that asks how much households want for precautionary purposes, this paper shows that expressed household preferences, and liquid savings, are much lower than predicted by standard modeling assumptions. Households rarely list unemployment as a reason to save. Perceived income uncertainty does not affect liquid savings or precautionary preferences. Neither does being in an occupation with higher income volatility. Instead, households seem very concerned with expenditure shocks.     

Uncertain Pension Income and Household Saving

This paper investigates the relationship between household saving and pensions, and estimates both the displacement effect of pensions on private saving and the precautionary saving effect due to uncertainty in pension income. I estimate the savings equation implied by a simple life‐cycle model featuring income uncertainty using survey data for Dutch households, with subjective expectations on pension benefits and uncertainty. Exploiting exogenous variation due to pension fund performance, I find that households save significantly more due to uncertainty in pension income. Not controlling for uncertainty biases the estimated displacement effect of pensions on private savings towards zero.     

Do the Rich Save More? Evidence from Canada

This paper provides new evidence on the long‐standing question of whether more affluent households save a larger fraction of their income. The major difficulty in empirically assessing the relationship between incomes and saving rates is to construct a credible proxy for long‐run income—purged of transitory fluctuations and measurement error. The Canadian Family Expenditure Survey provides us with both unusually good data on savings rates and potential predictors with which we can construct reliable long‐run income proxies. Our empirical analysis suggests that the estimated relationship between saving rates and long‐run incomes is sensitive to the predictor used to proxy long‐run income. Nevertheless, our preferred estimates indicate that, except for poorest households (who simply do not save), saving rates do not differ substantially across predicted long‐run income groups.     

Converting Forests to Farms: The Economic Benefits of Clearing Forests in Agricultural Settlements in the Amazon

Agricultural expansion into tropical forests is believed to bring local economic benefits at the expense of global environmental costs. The resulting tension is reflected in Brazilian government policy. The national agrarian reform program has settled farm families in the Amazon region since the 1970s, with the expectation that they will clear forests in order to farm the land. On the other hand, recent Brazilian policy initiatives seek to reduce deforestation to mitigate climate change. We contribute to the policy debate that surrounds these dual goals for the Amazon by estimating the marginal effects of new agricultural land on the full income and assets of farm settlers over a 13-year period from 1996 to 2009. Using micro panel data from agrarian settlements where forest was being rapidly cleared, and controlling for factors that would otherwise confound the relationship, we estimate the effect of converting forest to agriculture on total household income to estimate the opportunity cost of conserving forest. Our measure of income reflects any re-allocation of resources by utility maximizing households and any productivity effects due to loss of forest ecosystem services. The estimated effect of new agricultural land on income is positive, but small relative to the income per hectare of previously cleared land. However, we show that income increases investment in physical assets, which raises households’ income generating capacity and future accumulation of assets. Thus, while there is only a small immediate income gain from clearing more forest, the long-term effects on wealth are still substantial. This demonstrates that given the right conditions, conversion of forest to agricultural land can be an impetus for asset accumulation by smallholders. It also highlights the importance of considering the indirect and long-term welfare benefits of new agricultural land when assessing the opportunity costs of forest conservation.     

Over-savings and hyperbolic discounting

Hyperbolic discounting models are widely seen as implying that consumers do not save enough, in accordance with the observed low rates of savings of some households. This paper qualifies this view by showing that hyperbolic consumers may ‘oversave’ in the short run. The result extends to uncertainty on future income and does not depend on whether preferences are present-biased or future-biased. A generalized comparative statics analysis of self-control is introduced, and its relationship to the analysis of uncertainty on discount factors is emphasized.     

Factors affecting agricultural land transfer-in in China: a semiparametric analysis

We use interview survey data collected randomly from 2677 farm households in nine provinces of China to understand the role of demographic, economic, land, and village characteristics on agricultural land transfer-in by farmers. Results show that variables such as borrowing from informal sources, household labour availability, percentage of total income from agricultural sources, and the household with village cadre have significant positive effects on land transfer-in. Low economic development and low transportation network availability in a county reduces land transfer-in. We also find that two variables (land holding and land idling) should be entered into the model nonparametrically. Land holding and land idling have U- and L-shaped impacts on land transfer-in, respectively. Land transfer-in has endowment equilibrium and provides Chinese households more opportunities to earn agricultural income, thereby reducing rural poverty.     

Do Consumers Learn from Their Own Experiences?

It is natural to think that a household may learn from its own experiences and subsequently increase savings. This paper tests empirically the hypothesis that Japanese households learn from their experiences of large expenditure and increase their targets for precautionary savings after such experiences. The results imply that households raise their targets for precautionary savings by 4–5 percent of annual income in response to such experiences. Moreover, data are consistent with the argument that targets for savings affect actual savings. Assuming this holds, the results in this paper suggest that consumers may increase their actual savings following large expenditure.     

Income inequality, consumption, and social-status seeking

Using the Chinese Urban Household Survey data between 1997 and 2006, we find that income inequality has a negative (positive) effect on household consumption net of education expenditures (savings) even after we control for household income. We argue that people save to improve their social status when social status is associated with pecuniary and non-pecuniary benefits. Rising income inequality can strengthen the incentives of status-seeking savings by increasing the benefit of improving status, and by enlarging the wealth level required for status upgrading. We also find that the negative effect of income inequality on consumption is stronger for poorer and younger people and that income inequality stimulates more education investment, which are consistent with the status-seeking hypothesis.     

Microfinance and households access to credit: Evidence from Côte d’Ivoire

Evidence on microfinance services these days ironically shows a great preference for savings products rather than credit products by households. For some authors, this phenomenon is explained by the fact that microfinance products, and especially loans, from formal microfinance institutions do not fit the households demand. This paper first presents evidence on the observed phenomenon in the Ivorian microfinance sector. Second, it analyses the Ivorian credit market so as to understand the determinants of the choice for credits from formal sources versus informal sources. The results reveal the size of the loan, agricultural purpose, the geographical area where households live and ethnicity as factors influencing the choice for formal sources.     

Returns from income strategies in rural Poland

In order to stabilize and improve their income situation, rural households are strongly encouraged to diversify their activities both in and outside the agricultural sector. Often, however, this phenomenon takes on only moderate proportions. This article addresses issues of rural households' income diversification in the case of Poland. It investigates returns from rural households' income strategies using propensity score matching methods and extensive datasets spanning 1998–2008. Results suggest that returns from combining farm and off‐farm activities were lower than returns from concentrating on farming or on self‐employment outside agriculture. This differential is stable over time although returns from diversification have relatively improved after the accession of Poland to the European Union. This is also visible in the fact that since 2006, returns from combining farm and off‐farm activities have equalized with returns from relying solely on hired off‐farm labour, thus smoothing away the difference observed before the accession. Further, over the analysed period, households pursuing a diversification strategy performed better than those relying solely on unearned income. Finally, in general, incomes in households combining farm and off‐farm activities were higher than in those combining off‐farm income sources.     

The impacts of social pension on rural household expenditure: evidence from China

In 2009, China began to implement a new social pension scheme in rural areas. We examine the impacts of this social pension on two main components of rural household expenditure, consumption and agricultural production investment. Our findings show that on average, rural households increase consumption by 1–3% and agricultural investment by as high as 6–9% in pilot counties. Further estimations reveal that the pension mainly affects the households with old-aged members and the poorer families, and that the saving rate hasn’t been changed by the pension, which support more the contingent income than the life-cycle hypothesis. We also find that among various types of expenditures, the most dramatic increases have occurred in food consumption and operational inputs on agricultural production.     

INCOME,CONSUMPTION AND SAVING IN URBAN AND RURAL INDIA*

The main purpose of the study is to determine the savings potential of urban and rural households in India and in the process determine the possible savings and consumption functions separately for urban and rural areas. Four different possible functions have been used for determining the savings behaviour of the households both at the aggregate level and at the per capita level. The rural households, according to the results, have an extremely low rate of saving with income elasticity of saving of less than unity. For the urban households on the other hand, the income elasticity of saving is high enough to suggest the possibilities of considerably high savings potential. To understand the consumption behaviour of these households, the long-run and the short-run marginal propensities to consume and the marginal propensities to consume out of‘permanent’ or ‘normal’ income and ‘transitory’ income have been worked out. For the urban sector none of these give encouraging enough results and the analysis has been extended to examine whether other factors like prices and household assets are of any significance. Whereas for the rural sector, Milton Friedman's theory of ‘permanent’ or ‘normal’ income is somewhat substantiated, other factors like ‘transitory’ income, prices and assets appear to inthence urban consumption behaviour though no single one of them substantially enough. A negligible effect of ‘permanent’ income on urban consumption behaviour is, on the other hand, very clearly suggested by the results. Household consumption and savings have next been projected using the above results to determine the possible levels for the next three years. The results suggest that the rate of domestic savings likely to be achieved by the end of the Third Five Year Plan (1965–66) falls short of the targets laid down.     

Does 401(k) eligibility increase saving?: Evidence from propensity score subclassification

By comparing 401(k) eligible and ineligible households’ wealth, this paper estimates that, on average, about one half of 401(k) balances represent new private savings, and about one quarter of 401(k) balances represent new national savings. Responses to eligibility vary considerably, however, with households who normally save the most largely contributing funds they would have saved anyway. This paper improves on previous research by: (1) employing propensity score subclassification to control more completely for observed household characteristics, (2) controlling for more household characteristics, including several correlated with unobserved savings preferences, and (3) adjusting the observed measure of households’ wealth to reduce measurement error.     

The Pattern of Household Savings During a Hyperinflation: The Case of Urban China in the Late 1980s

This paper presents evidence on household savings in urban regions of the Chinese provinces Sichuan and Liaoning, based on data from the State Statistical Bureau's Urban Household Survey for the late 1980s. In this period the Chinese economy was subject to extensive reforms that resulted in rapid economic growth followed by extremely high inflation. The high inflation rates gave the households strong motives to switch from financial savings to purchase of consumer durables, which also appear to be consistent with the structure of the observed data. By providing empirical evidence on the relative importance of savings by lower, middle and upper income groups for single-child families and for all households, this study also discusses whether savings decisions depend on the level of household income. Single-child families are focused, not only because of their growing dominance in the current Chinese society, but also to control for the effect of demographic disparities.     

Consumption,habit formation,and savings: Evidence from a rural household panel survey

Protecting consumption from the effects of uninsured risk is vital for rural farming households, who tend to be poor and live close to subsistence level. Income uncertainty and habit formation play important roles in the consumption and savings. Variability in weather conditions has a strong linkage with variability in agricultural income in developing countries. This study analyzes consumption and saving decisions of rural farm households in India. Using household panel data for 4 years, we estimated consumption equation accounting for habit formation under income uncertainty. Our findings suggest an evidence for habit formation among rural households. Additionally, we found that both annual and seasonal weather risks significantly influence savings among rural households. Findings from this study also suggest a robust and vibrant farm economy and that the nonfarm economy could contribute to the economic well‐being of rural farming households.     

The German Savings Puzzle

Germany has one of the most generous public pension and health insurance systems of the world, yet private savings are high and remain positive until old age, even for most low income households. How can we explain what we might want to term the “German savings puzzle”? We provide a complicated answer that combines historical facts with capital market imperfections, housing, tax and pension policies. The first part of the paper describes how German households save, based on a synthetic panel of four cross sections of the German Income and Expenditure Survey (“Einkommens- und Verbrauchsstichproben”) collected between 1978 and 1993. The second part links saving behaviour with public policy, notably tax and pension policy.     

The savings behavior of migrant workers : Turkish workers in W. Germany

This paper presents an analysis of savings behavior of Turkish households residing in W. Germany using survey data. It is found that there exists a statistically significant difference in the savings behavior of households who migrate from urban areas of Turkey and those who migrate from rural areas. The estimated savings function is non-linear with respect to household income. While education and the occupation of the head of household do not have statistically significant impacts on the savings of either group, age of the household's head has a statistically significant impact on the savings behavior of both groups.     

流动性约束和不确定性状态下的预防性储蓄研究-中国城乡居民的消费特征分析

该文利用我国城乡时间序列数据,对城乡居民的消费特征做了新的探索.我们对引入预期收入增长的对数线性欧拉方程和二阶泰勒近似的欧拉方程进行了估计,结果说明,当期收入仍是决定我国居民消费的主要因素,消费的随机游走假说不成立;城镇居民比农村居民有更强的预防性储蓄动机.1990年代中期以来持续走低的收入增长率直接抑制了消费需求的增长,而仍然偏紧的流动性约束和日益增强的不确定性增大了预防性储蓄动机.     

Saving–investment Association and Regional Capital Mobility in China: A Nonparametric Panel Approach

Using a nonparametric panel data model, this paper estimates the degree of time‐varying and province‐specific capital mobility in China during 1970–2006. We estimate the savings–investment association, that is, the savings retention rate à la Feldstein and Horioka, as a measure of capital mobility. We also split the total savings (investment) into private and government savings (investment) to explore the role of government in improving capital mobility. Over time, we find an improvement in capital mobility after the mid‐1990s. Across provinces, we observe higher capital mobility in eastern/coastal regions. From the 1990s, the government is found to play a less important role in promoting capital mobility. Across provinces, the government is found to be more important in either the municipalities (Shanghai and Beijing) or the less developed inland provinces.