Household saving in an emerging economy: The case of Poland 1995-2016

Objective: According to the life cycle hypothesis, young generations earn higher life income than older generations earned when they were the age of their children and grandchildren. The consumption levels of young households are also higher than were the levels of consumption of older generations. What is striking in the fast growing economies is that the saving rates at a young age are also remarkably high. The aim of this paper is to identify factors affecting the life cycle saving profiles of households in a growing emerging economy at the example of Poland.

Data: We use the 22 year long series of household income and expenditure data from the Household Budget Surveys of Polish households conducted by the official Statistics Poland in the years 1995-2016. During this period the sample of households increased from 25 to 37 thousand households surveyed per year. Altogether the data set used for this research consists of 650 thousand households.

Method: From the cross sectional data for Polish households we constructed 67 cohorts (defined by year of birth) of heads of households born in the years 1930-1996. We examine a persons ages 20-75 years during 1995-2016. Deaton decomposition was applied to decompose the household saving rate into cohort and age effects.

Results: The results of the cohort analysis show that the life cycle age effects for household saving are increasing with age and the cohort effects for household saving are increasing for younger cohorts. These results are not in full compliance with the life cycle theory but are representative for the fast growing emerging economies.