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Savings and Risks Over the Lifecycle: Theory and Evidence (Savings and Risks)
Start date: Mar 1, 2014, End date: Feb 28, 2018 PROJECT  FINISHED 

People save for many reasons, such as to finance their retirement, to leave bequests to others, to start and develop a business, and to self-insure against risks. When young, these risks include wage risk, unemployment risk, entrepreneurial risk, and divorce risk. When old, one risks living to a very old age and running out of assets, being hit by expensive medical needs, and losing one’s spouse. An important factor affecting people’s risk exposure, and hence saving behaviour, is the public insurance provided by governments. Risks and insurance influence key economic choices and affect people’s welfare, macroeconomic aggregates, and inequality.The proposed research will develop and test models of individual and household saving to a) provide novel evidence on the determinants of saving at different ages; b) better quantify the interaction of saving with the insurance provided by the government and by one’s family; c) study how individual-level decisions affect macroeconomic conditions and the distribution of wealth; d) evaluate the effects of policy proposals and different institutions using quantitative model economies, calibrated to both the U.S. and European countries.The proposed applications include studying (i) the effects of means-tested public health insurance and its reforms on single retirees. (ii) A structural model of couples’ savings and risks in old age. (iii) Couples’ savings and labour supply during their whole life cycle, including the working stage. (iv) The effects of credit shocks on the saving and hiring of small-business owners and the resulting aggregates. (v) Differences in wealth accumulation between the healthy and the unhealthy.By better modeling and quantifying saving motives, risks, and publicly provided insurance, we can propose more efficient reforms. By applying our analysis to both the US and to European economies we can reach a better understanding of the effects of different institutions across countries.

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