City Size,Commuting Cost and Household Savings Rate:Evidence from China

Economics literature has long overlooked an important economic phenomenon:Residents in large cities tend to save a smaller percentage of their disposable income than their peers in small and medium-sized cities.As an explanation for this phenomenon,this paper puts forth the hypothesis that:Residents in large cities purchase more services to increase their leisure time,which is reduced by longer commuting time than in small and medium-sized cities,thus lowering their household savings rate.We conducted an empirical study using panel data of China’s prefecture-level cities and urban household survey data,and employed an instrumental variable to address the endogeneity problem.The result confirmed the accuracy of the above hypothesis.In identifying the economic phenomenon and putting forth the hypothesis,this paper(i)creates a theoretical link between city size and household savings rate,which helps unravel the determinants of the urban household savings rate;(2)provides important implications for China’s policy-making on domestic consumption,urban populations,and industrial development.Priority should be given to developing large and medium-sized cities given the positive effects on domestic consumption and service sector development,and migrant labor shall not be barred from entering large and medium-sized cities to provide services to local residents.

China’s High Savings Rate Puzzle:Role of Precautionary Saving

Academics have yet to agree on the effectiveness of the precautionary saving theory in explaining Chinese households’saving behavior.With the Wenchuan megaearthquake of 2008 as an uncertain event to overcome the endogeneity problem of income volatility,this paper puts forward a brand-new hypothesis that"an earthquake influences household saving rate through its effects on expected income and the variance of expected income."Then,we employ propensity score matching-difference-in-differences(PSMDID)method,the systematic GMM methods,the synthetic control method,together with instrumental variable method,for an analysis of Chinese Household Income Project(CHIP)and inter-provincial data at the micro and macro levels,respectively.We find that the Wenchuan mega-earthquake was followed by an increase in the variance of household expected income in Sichuan and a significant rise in the household saving rate.Second,social protection is negatively correlated with expected income,and has a significant substitutive relationship with saving rate.This finding indirectly proves that the earthquake’s impact on the household saving rate is subject to the variance of expected income,shedding light on how the precautionary saving motivation works in the real world.