Saving from Permanent and Transitory Income. The Case of Polish Households

The paper analyses the impact of income uncertainty on household saving. Using a panel of Polish households for 1997-2000 we decompose uncertainty of household income into a variance of shocks to permanent income and a variance of shocks to transitory income. Then we regress households’ savings on the estimated measures of income uncertainty controlling for demographic and social variables. Our empirical results indicate that the average variances of permanent and transitory income of Polish households do not differ much. Both measures of income uncertainty are statistically significant in predicting saving. The permanent income uncertainty affects savings more than the uncertainty of transitory income. A significant part of households’ savings in Poland may be of precautionary, buffer-stock character.

This paper is the CHER (Consortium of the Household Panels for European Socio-economic Research) Working Paper, 2003, No. 15, presented at the 28th General Conference of the International Association for Research in Income and Wealth in Cork, Ireland in 2004 and at the CHER workshop in Spain, 2002. It is a companion paper to Uncertainty of Households’ Income in the European Union Countries and Poland., co-authored by B. Liberda, B. Górecki, and M. Pęczkowski, that was published in EMERGO, 4(38)/2003 and appeared also as CHER Working Paper, 2003, No. 13, within the programImproving the Human Research Potential and the Socio-Economic Knowledge Base, supported by the European Commission.