In this survey, we review the recent theoretical and empirical literature on household saving and consumption. The discussion is structured around a list of motives for saving and how well the standard theory captures these motives. We show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model. Particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior. We also discuss the "behavioral" or "psychological" approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving. We provide a section on facts: who save and how much. We then discuss informally the recent decline in the U.S. saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time. We do not find any convincing explanation for the change in saving rates. We also discuss some analyses of saving behavior over the life-cycle, addressing such questions as whether households save "enough" for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model. We also review a great number of studies of the consumption Euler equations. Based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income. We also examine in depth the recent empirical literature on the precautionary motive. We conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle, this motive is not so strong empirically as some investigators suggest.

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Household Saving: Micro Theories and Micro Facts

There is evidence from several sources that one cannot treat many-person households as a single decision maker. If this is the case, then factors such as the relative incomes of the household members may affect the final allocation decisions made by the household. We develop a method of identifying how ''incomes affect outcomes'' given conventional family expenditure data. The basic assumption we make is that household decision processes lead to efficient outcomes. We apply our method to a sample of Canadian couples with no children. We find that the final allocations of expenditures on each partner depend significantly on their relative incomes and ages and on the level of lifetime wealth.

/pdf/income-and-outcomes-a-structural-model-of-intrahousehold-3j4hg5czm6.pdf

Income and Outcomes: A Structural Model of Intrahousehold Allocation

In this paper, using panel data, I estimate plant level production functions that include variables that allow for two types of scale externalities which plants experie nce in their local industrial environments. First are externalities from other plants in the same industry locally, usually called localization economies or, in a dynamic context, Marshall, Arrow, Romer [MAR] economies. Second are externalities from the scale or diversity of local economic activity outside the own industry involving some type of cross- fertilization, usually called urbanization economies or, in a dynamic context, Jacobs economies. Estimating production functions for plants in high tech industries and in capital goods, or machinery industries, I find that local own industry scale externalities, as measured specifically by the count of other own industry plants locally, have strong productivity effects in high tech but not machinery industries. I find evidence that single plant firms both benefit more from and generate greater external benefits than corporate plants. On timing, I find evidence that high tech single plant firms benefit from the scale of past own industry activity, as well as current activity. I find no evidence of urbanization economies from the diversity of local economic activity outside the own industry and limited evidence of urbanization economies from the overall scale of local economic activity.

Marshall's Scale Economies

This paper examines whether there is a threshold above which …nancial development no longer has a positive eect on economic growth. We use dierent empirical approaches to show that there can indeed be "too much" …nance. In particular, our results suggest that …nance starts having a negative eect on output growth when credit to the private sector reaches 100% of GDP. We show that our results are consistent with the "vanishing eect" of …nancial development and that they are not driven by output volatility, banking crises, low institutional quality, or by dierences in bank regulation and supervision.

Too much finance

SUMMARY We introduce a new power transformation family which is well defined on the whole real line and which is appropriate for reducing skewness and to approximate normality. It has properties similar to those of the Box-Cox transformation for positive variables. The large-sample properties of the transformation are investigated in the contect of a single random sample.

A new family of power transformations to improve normality or symmetry

Transformations that could be used to reduce the influence of extreme observations of dependent variables, which can assume either sign, on regression coefficient estimates are studied in this article. Two that seem reasonable on a priori grounds—the extended Box—Cox (BC) and the inverse hyperbolic sine (IHS)—are evaluated in detail. One feature is that the log-likelihood function for IHS is defined for zero values of the dependent variable, which is not true of BC. The double-length regression technique (Davidson and MacKinnon 1984) is used to perform hypothesis tests of one transformation against the other using Canadian data on household net worth. These tests support the use of IHS instead of BC for this data set. Empirical investigators in economics often work with a logged dependent variable (taking the natural logarithm of a data series is, of course, a special case of BC) to reduce the weight their particular estimation procedure might otherwise attach to extreme values of the dependent v...

Alternative Transformations to Handle Extreme Values of the Dependent Variable

Using micro data from the Canadian Survey of Consumer Finances, 1971-91, we investigate the return to a university education. Our conclusions are that while there appears to have been some decline in the return to a university degree during the 1970s in Canada (similar to the United States), the return did not rebound much during the 1980s except among the youngest experience (age) group. There is, however, considerable noise in the ratios from year to year so that one is likely to draw misleading inferences if only a few years of data are used.

The Wage Premium to a University Education in Canada, 1971-1991

The shift towards the internal responsibility system and the mandating of Joint Health and Safety Committees in the early 1980s represented a radical departure in terms of how health and safety were regulated in the workplace. This paper examines the effectiveness of this institutional change using firm level data provided by the Worker's Compensation Board on lost time accidents from 1976 to 1989. It finds that where management and labour had some sympathy for the co-management of health and safety through joint committees, the new system significantly reduced lost-time accident rates. At workplaces where either labour or management resisted the spread of co-management the mandating of committees appears to have little effect on lost-time accident rates.

The Effectiveness of Bill 70 and Joint Health and Safety Committees in Reducing Injuries in the Workplace: The Case of Ontario

The transition from good to poor health: an econometric study of the older population.

This paper employs a lifecycle model to analyse the theoretical effects on an individual's retirement behaviour of pension plans that are not actuarially fair. In addition it examines public and private pension plans in Canada and indicates that income effects are likely to be at least as important as substitution effects and that new plans may have effects which are very different from those of mature plans. In particular, the analysis suggests that empirical evidence drawn from the phase-in period of the Canada Pension Plan (1966-75) is misleading as to the effects of the mature plan on the age of retirement. Regimes de rentes et d&ision de prendre sa retraite. Ce memoire utilise un modele dit du cycle-de-vie pour analyser les effets, au plan theorique, sur la decision de prendre sa retraite du fait qu'un individu participe a un regime de rentes qui n'est pas 'equitable' au plan actuariel (i.e., a un regime pour lequel la valeur presente des contributions n'est pas 6gale a la valeur presente des prestations). De plus le memoire examine les regimes de rentes tant publics que prives au Canada et montre que les effets de revenus sont susceptibles d'&re au moins tout aussi importants que les effets de substitution. I1 appert aussi que les regimes nouveaux peuvent avoir des effets fort diff6rents de ceux des regimes arrives 'a maturation. En particulier, l'analyse suggere que les donnees empiriques tirees de la periode d'introduction et de mise en place du regime de rentes du Canada (1966-75) et les interpretations auxquelles elles ont donne lieu quant a l'effet du r6gime sur l'age de la retraite peuvent fort bien porter 'a faux et ne pas s'appliquer au moment oiu le regime atteint sa maturite. I N T R O D U C T I O N The effects of the demographic bulge known as the baby boom have brought home to economists the importance of anticipating the effects of demographic changes. In Canada and elsewhere there has been much concern about the increasing number of elderly in our population. The concern has focused primarily on the effects of pension plans on savings. More recently, however, Feldstein (1977), Sheshinski (1978) and Kotlikoff (1979a and 1979b) have We would like to thank Frank Denton, Curtis Eaton, John Kennan and the editors and referees of this JOURNAL for comments on earlier versions of this paper. Canadian Journal of Economics I Revue canadienne d'Economique, XIII, no. 3 August / aouit 1980. Printed in Canada / Imprinm au Canada. 0008-4085 / 80 / 0000-0421 $01.50 ? 1980 Canadian Economics Association This content downloaded from 157.55.39.102 on Sun, 25 Dec 2016 06:48:03 UTC All use subject to http://about.jstor.org/terms 422 / J.B. Burbidge and A.L. Robb considered also the effects of such plans on the retirement decision. For this purpose, the authors employ variants of a lifecycle model and treat retirement as a complete withdrawal from the labour force (this is a matter of interpretation in Feldstein's two-period model). Feldstein and, for the most part, Sheshinski examine only 'actuarially fair' plans, that is, pension plans where the present value of contributions equals the present value of benefits. If the individuals knew that a plan was always to be fair, in this sense, it could not, of course, have an effect unless capital markets are imperfect. In the Feldstein and Sheshinski models, however, the individual is presumed to react separately to both the increase in the payroll tax and the pension benefit, because he fails to realize that the two effects are designed so that they always cancel out. The result is to erase any income effects and leave only the substitution effects operative in any comparative static analysis. Kotlikoff, on the other hand, assumes that 'fair' plans have no effects or, alternatively, that individuals realize that the plans are designed such that the effects always cancel out. Since both Kotlikoff and the other authors assume full knowledge of the pension benefits function, the tax rate, the length of life, and so on, it seems reasonable to us to assume, with Kotlikoff, that the individual is capable of realizing that 'fair' plans cannot affect the choice set. In this paper we consider the implications for the retirement age of the introduction of various sorts of 'unfair' pension plans. In so doing, we cover similar material to that examined by Kotlikoff and in part by Sheshinski. But whereas their focus was on steady state capital formation, ours is on the retirement decision of the individual. In the second section we outline a lifecycle model which is sufficiently general to capture the main features of most pension plans, yet is simple enough to admit of a diagrammatic exposition. In the next section we present the analogues of income and price effects. In the fourth section we employ our model to analyse particular public and private pension plans. In so doing, we point out that almost all pension plans are unfair for a particular individual. Two themes which emerge from our analysis are that the income effects of pension plans are at least as important as the substitution effects and that new plans may have effects which are very different from the effects of mature plans. In particular, it is our hypothesis that empirical evidence drawn from the phase-in period of the Canada Pension Plan (1966-75) may be totally misleading as a guide to the long-term effects of the plan on the age of retirement. We summarize our results in the last section.

A. Leslie Robb

Papers

Alternative Transformations to Handle Extreme Values of the Dependent Variable

The Wage Premium to a University Education in Canada, 1971-1991

The Effectiveness of Bill 70 and Joint Health and Safety Committees in Reducing Injuries in the Workplace: The Case of Ontario

The transition from good to poor health: an econometric study of the older population.

Pensions and Retirement Behaviour