Saving and habit formation: evidence from Dutch panel data

Abstract

This paper focuses on the role of habit formation in individual preferences. In this study, the model of Alessie and Lusardi (Econ Lett 55:103-108, 1997) and its extension by Guariglia and Rossi (Oxf Econ Pap 54:1-19, 2002) are considered. Our empirical specifications are based on their closed-form solutions, where current saving is expressed as a function of lagged saving and other regressors. In our study, we use a longitudinal data set from the Netherlands that allows us to disentangle the role of habit formation from unobserved heterogeneity. Contrary to most other studies using survey data, we find evidence in favor of habit formation. However, the magnitude of the habit formation coefficient is rather small. Income uncertainty seems to affect saving behavior of Dutch households.

Psychological determinants of financial buffer saving: the influence of financial risk tolerance and regulatory focus

“…Furthermore, several situational factors affect saving, ranging from recessions (Crossley, Low, and O'Dea 2013) and financial crises (O'Neill and Xiao 2012) to the risk of divorce (González and Özcan 2013;Pericoli and Ventura 2011), health deterioration (Macé 2012) and the unemployment of relatives (Tokuoka 2013). Generally speaking, income uncertainty has a positive impact on saving behaviour (Alessie and Teppa 2009;Fisher 2010). We therefore added a measure of economic trust to the model, with the assumption that high situational trust (i.e.…”

Smooth it Like the ‘Joneses’? Estimating Peer‐Group Effects in Intertemporal Consumption Choice

“…In the same literature, there have also been a few contributions devoted to ‘internal’ habit formation, i.e., persistent effects of an individual's own consumption experience over time. Yet, the empirical evidence for internal habits is mixed at best, judging from the papers by Dynan (2000), Guariglia and Rossi (2002), Alessie and Teppa (2002), Ravina (2005) and Browning and Collado (2007). Our approach differs from these contributions in that we focus on ‘external’ habit formation: instead of looking at current consumption relative to past consumption for a given individual, we investigate the relationship between an individual's current consumption and that of her peers.…”

Implications of Insights from Behavioral Economics for Macroeconomic Models

“…Dynan (2000) finds no habit formation among US households, while Alessie and Teppa (2010) find evidence in favor of habit formation for Dutch households, but the magnitude is rather small. Fusaro and Dutkowsky (2011) analyze consumption behavior on the basis of checking accounts for US households, and the results give little evidence for habit formation.…”