Saving from Permanent and Transitory Income. The Case of Polish Households
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The paper analyses the impact of income uncertainty on household saving. Using a panel of Polish households for 1997-2000 the authors decomposed uncertainty of household income into a variance of shocks to permanent income and a variance of shocks to transitory income. Then they regressed household's savings on the estimated measures of income uncertainty controlling for demographic and social variables. The empirical results indicate that the average variances of permanent and transitory income of the Polish households do not differ much. Both measures of income uncertainty are statistically significant in predicting savings. The permanent income uncertainty affects savings more than the uncertainty of transitory income. A significant part of of households' savings in Poland may be of precautionary, buffer-stock character.
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