Intergenerational Precautionary Savings in Europe*
| Published date | 01 April 2022 |
| Author | Francesco Scervini,Serena Trucchi |
| Date | 01 April 2022 |
| DOI | http://doi.org/10.1111/obes.12461 |
Intergenerational Precautionary Savings in Europe*
FRANCESCO SCERVINI
†
and SERENA TRUCCHI
‡
†
Department of Social and Political Science, University of Pavia, Corso Strada Nuova 65,
Pavia 27100, Italy (e-mail: francesco.scervini@unipv.it)
‡
Cardiff Business School, Cardiff University, Aberconway Building, Colum Road,
Cardiff CF10 3EU, UK
Abstract
In this paper, we study whether precautionary saving motives have an intergenerational
component; namely whether and to what extent the income uncertainty of younger
generations affects the savings of their parents. To this end, we exploit a cross-country
European longitudinal household dataset collecting information on parents and their
offspring, augmented with indicators for their offspring’s income risk. We find that
savings significantly respond to changes in income risk, also across generations. This
finding is robust to several checks and displays heterogeneity across countries, which
is consistent with substitutability between private and public insurance tools.
I. Introduction
A thorough understanding of household and aggregate savings’determinants is a key
issue for policymakers in designing and implementing actions aimed at increasing
individual welfare and overall income and wealth. Household expenditure is typically
around two-thirds of GDP (OECD, 2021); therefore, knowledge of the determinants of
JEL Classification numbers:D13, D14, C23.
*The research is financed by the Blue Sky Research project, itself financed by the University of Pavia. Part of
this work was developed when Trucchi was visiting ZEW’s International Finance and Financial Management; its
hospitality and financial support from DAAD are gratefully acknowledged. We thank Giuseppe Bertola, Markus
Knell and participants in the 2018 SIEP Annual conference, 2019 Netspar International Pension Workshop, 1st
CefES International Conference on European Studies, 2019 International Conference on Public Economic
Theory, 2019 SIE Annual conference and Seminars at the University of Siena, University of Turin, Ca’Foscari
University of Venice and University of Alicante for helpful comments. We also thank Dalila De Rosa for her
assistance with the data. This study uses data from SHARE Waves 1, 2, 4, 5 and 6, (DOIs: 10.6103/
SHARE.w1.611, 10.6103/SHARE.w2.611, 10.6103/SHARE.w4.611, 10.6103/SHARE.w5.611, 10.6103/
SHARE.w6.611.) see B¨
orsch-Supan et al.(2013) for methodological details. The SHARE data collection was
funded primarily by the European Commission. (In detail, through FP5 (QLK6-CT-2001-00360), FP6 (SHARE-
I3: RII-CT-2006-062193, COMPARE: CIT5-CT-2005-028857, SHARELIFE: CIT4-CT-2006-028812), and FP7
(SHARE-PREP: N.211909, SHARE-LEAP: N.227822, SHARE M4: N.261982).) Additional funding from the
German Ministry of Education and Research, the Max Planck Society for the Advancement of Science, the
U.S. NationalInstituteonAging,(U01_AG09740-13S2,P01_AG005842,P01_AG08291,P30_AG12815,
R21_AG025169, Y1-AG-4553-01, IAG_BSR06-11, OGHA_04-064, HHSN 271201300071C.) and from various
national funding sources is gratefully acknowledged (see www.share-project.org).
[Correction added on 20 May 2022, after first online publication: CRUI-CARE funding statement has been
added.]
427
©2021 The Authors. Oxford Bulletin of Economics and Statistics published by Oxford University and John Wiley & Sons Ltd.
This is an open access article under the terms of the Creative Commons Attribution License,which permits use, distribution and reproduction in
any medium, provided the original work is properly cited.
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 84, 2 (2022) 0305-9049
doi: 10.1111/obes.12461
household consumption and saving choices is essential for the economic analysis of
aggregate demand. Consumption is also a key determinant of individuals’welfare and,
from a microeconomic perspective, contributes to the general level of well-being, as
much as to its distribution in the population.
In this paper, we study the link between savings and income risk from an
intergenerational perspective. In particular, we investigate whether and to what extent
the income uncertainty of younger generations impacts the savings of their parents.
Theories of intertemporal choice posit an incentive for the intertemporal smoothing of
expected income changes. When the strong assumptions that lead to certainty
equivalence are relaxed, theory predicts that risk-averse and prudent individuals also
respond to higher moments of the distribution of future income, namely in regard to
income uncertainty (Caballero, 1990; Kimball, 1990). We extend this channel by
considering the intergenerational transmission of income risk. Is there an
intergenerational precautionary motive for saving?
The reason we believe this topic deserves attention is twofold. On the one hand,
since the wave of labour market reforms experienced during the 1980s and 1990s in
most European countries, labour markets have become more uncertain overall. Indeed,
successive waves of reforms reduced the employment protection across Europe (see,
for instance, Boeri, 2011; Barbieri and Cutuli, 2015), even more so for younger
workers (Cazes and Tonin, 2010), making expectations on future income more
uncertain. Moreover, the financial and economic crises contributed to worsening the
labour market for younger individuals relative to their elderly cohorts.
On the other hand, the literature on the potential interplay between precautionary
saving and altruistic reasons for saving is rather scant, and this study contributes to
two main strands of literature.
1
First, it relates to research focusing on the role of the
extended family as insurance. Instead of focusing on insurance ex-post, namely on the
effect of the realization of income shocks, as in Attanasio, Meghir and Mommaerts
(2018) and Kaplan (2012), we investigate the ex-ante response of parents’behaviour to
a change in offspring’s income risk. Second, we contribute to the literature analysing
the determinants of consumption and saving.
We test whether a change in the offspring’s income risk affects the savings of parents.
By doing so, we differ from the previous literature, which analyses the bequest motive
for saving, where intergenerational transfers can only manifest in the form of an end-of-
life bequest and are typically determined by a ‘warm glow’motivation and are
independent of the offspring’s characteristics (De Nardi, 2004). On the contrary, we
allow parents’consumption to be affected by a change in the riskiness of their offspring’s
income and we do not restrict transfers to take the form of an end-of-life bequest.
We use a cross-country European household panel dataset targeted towards
individuals older than 50 years in order to investigate their behaviour, and making it
possible to identify a causal relationship between income uncertainty of younger
individuals and the savings decisions of their parents’households. The Survey of
Health, Ageing and Retirement in Europe (SHARE) collects information on individuals
1
See section II for a review of the related literature.
©2021 The Authors. Oxford Bulletin of Economics and Statistics published by Oxford University and John Wiley & Sons Ltd.
428 Bulletin
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