Are Car Purchases Savings? An Analysis of German Households
Savings, defined as increase in net wealth, are characterized in most studies as a portfolio of different financial assets or long term durable goods such as houses. Cars are normally not included, although they have typical properties of assets; for instance, they yield returns, change in value or are subject to risk just like bonds or shares. Germans, in particular, clearly take into account the resale values of cars when they make a car purchase, a ‘stylized fact’ that points to the usefulness of an analytical inquiry of this question: we want to explicitly test the hypothesis that car purchase expenditures are considered by households as part of their long-term investments, using German household data for 1983. Naturally, a savings function based on this extended definition should not look very different from a “classical” savings function.
KeywordsCapital Expenditure High Income Household Saving Function Economic Distance Life Cycle Theory
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