Policy Uncertainty and Household Savings

Abstract

Abstract-Using German microdata and a quasi-natural experiment, we provide evidence on how households respond to an increase in uncertainty. We find that household saving increases significantly following the increase in political uncertainty observed in the run-up to the 1998 German general election. We also find evidence of a labor supply response by workers who can use the margin offered by part-time employment. Our results are suggestive of the economic effects of "wars of attrition": when political disagreement leads to delays in adopting a reform or the possibility that earlier reforms may be revoked, the increased uncertainty could slow the economy.

Sentiment, mood and outbound tourism demand

“…reduce spending) when policy uncertainty increases. Baker et al (2013) corroborate the findings by Giavazzi and McMahon (2012), suggesting that increases in economic policy uncertainty makes businesses and households postpone investment, as well as, consumption expenditure.…”

“…EPU could directly affect consumer spending behavior, as suggested by Giavazzi and McMahon (2012) and Baker et al (2013). More specifically, Giavazzi and McMahon (2012) find that German households increase their savings (i.e.…”

“…More specifically, Giavazzi and McMahon (2012) find that German households increase their savings (i.e. reduce spending) when policy uncertainty increases.…”

Political uncertainty and household savings

“…Researchers have used cross-sectional variations either in realized income risk across occupations (Skinner 1988, Carroll and Samwick, 1997, 1998 or geographic regions (Carroll, Dynan and Krane, 2003) or in subjective risk expectations (Guiso, Jappelli, andTerlizzese 1992 andLusardi 1997). 5 Giavazzi and McMahon (2012) is the only recent paper we know of to study the effect of policy uncertainty on households' savings and labor supply responses. Using micro data from Germany, they explore the closely contested German general election during which there was uncertainty over unemployment and pension rules.…”

Job Security Perceptions and the Saving Behavior of German Households

“…Direct measures of the ow of saving have been employed by Guariglia (2001), Fuchs-Schündeln (2008), Giavazzi and McMahon (2010) and Geyer (2011) who all nd a positive eect of income or policy uncertainty on saving. Many of the above mentioned problems of wealth measures also apply to saving measures, e.g., the type of saving to be included or the relevance of past events.…”