The Life Cycle Saving Behavior of Two-Person Households: Evidence from the U.S. Panel Study of Income Dynamics

Nigar Nargis, Cornell University

The non-cooperative model of household saving for two-person households predicts that household saving rate is positively correlated with wife’s contribution to household earning. This result excludes the ranges where the wife's earning share is so low or so high that one spouse's contribution is high enough for him or her to tend to act as a single decision-maker on saving. This paper finds empirical evidence of this relationship using PSID data. It rejects the assumption of “global income pooling” that household saving is independent of any redistribution across the intra-household earning distribution, maintained in the unitary model, in favor of the assumption of “local income pooling” that household saving is independent of small redistributions only at the tails of the distribution. The policy implication of this result is that, given household income, a redistribution of earnings towards the wife potentially increases household saving rate, in turn increasing total household saving.