We test for the presence of precautionary saving using a self-reported measure of earnings uncertainty drawn from the 1989 Italian Survey of Household Income and Wealth. The effect of uncertainty on saving and wealth accumulation is consistent with the theory of precautionary saving and with decreasing prudence. However, earnings uncertainty explains only a small fraction of saving and asset accumulation. The results cast doubts on the empirical relevance of precautionary saving in response to earnings uncertainty, but are not in contrast with the importance of the precautionary motive per se. Beside earnings uncertainty, other major risks, such as health and mortality, may be important determinants of wealth accumulation.
This paper - presented at the Workshop on "Savings in Italy: Past and Future Trends, Household and Government Behaviour", held in Rome on 16-17 January 1992 - is part of a research project undertaken at the Bank of Italy. The Italian versions of all the contributions will be published in a special issue of "Contributi all'analisi economica".
