Abstract
This paper focuses on the role of habit formation in individual preferences. In this study, the model of Alessie and Lusardi (Econ Lett 55:103–108, 1997) and its extension by Guariglia and Rossi (Oxf Econ Pap 54:1–19, 2002) are considered. Our empirical specifications are based on their closed-form solutions, where current saving is expressed as a function of lagged saving and other regressors. In our study, we use a longitudinal data set from the Netherlands that allows us to disentangle the role of habit formation from unobserved heterogeneity. Contrary to most other studies using survey data, we find evidence in favor of habit formation. However, the magnitude of the habit formation coefficient is rather small. Income uncertainty seems to affect saving behavior of Dutch households.
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Acknowledgments
We thank Arie Kapteyn, Jan van Ours, Mario Padula, Arthur van Soest and seminar participants at the University of Lausanne for their helpful comments. We are very grateful to two anonymous referees for their useful suggestions. Any remaining errors are our responsibility. In this paper, use is made of data of the DNB Household Survey (formerly known as CentER Savings Survey); we thank CentERdata at Tilburg University for supplying them.
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Alessie, R., Teppa, F. Saving and habit formation: evidence from Dutch panel data. Empir Econ 38, 385–407 (2010). https://doi.org/10.1007/s00181-009-0272-z
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DOI: https://doi.org/10.1007/s00181-009-0272-z