Precautionary savings and the importance of business owners
By: Erik Hurst ... [et al.].
Contributors: Hurst, Erik.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11731; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11731.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Saving and investment -- Mathematical models.; Business enterprises -- Finance -- Mathematical models.
Description: "In this paper, we show the pivotal role business owners play in estimating the importance of the precautionary saving motive.  Since business owners hold larger amounts of wealth than other households for non-precautionary reasons and also face highly volatile income, they induce a correlation between wealth and income risk regardless of whether or not a precautionary saving motive exists.  Using data from the Panel Study of Income Dynamics in the 1980s and the 1990s, we show that among both business owners and non-business owners, the size of precautionary savings with respect to labor income risk is modest and accounts for less than ten percent of total household wealth.  However, pooling together the two groups leads to an artificially high estimate of the importance of precautionary savings.  New data from the Survey of Consumer Finances further confirms that precautionary savings account for less than ten percent of total wealth for both business owners and non-business owners.  Thus, while a precautionary saving motive exists and affects all households, it does not give rise to high amounts of wealth in the economy, particularly among those households who face the most volatile stream of income"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 12/1/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.