The puzzle of household savings in the European Union: tracing influences across time and space

Skoblar, Ana

doi:10.3326/pse.48.3.1.

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The puzzle of household savings in the European Union: tracing influences across time and space

Ana Skoblar*

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https://doi.org/10.3326/pse.48.3.1

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Table 1
Determinants of household savings in empirical findings

Category	Determinant	Expected sign	Empirical findings
Income	Disposable income: level	+	(0) 5, 6; (+) 1, 2, 3, 7, 12, 13, 15, 16, 17, 19
	Disposable income: temporary/permanent	+/0 or -/0	(0) 7, 15 / (0) 7 (+) 15
	GDP/disposable income growth	Ambiguous	(-) 11, 13, 16; (0) 5, 6; (+) 2, 3, 4, 7, 10, 12, 15, 19, 22
	Terms of trade index: level	Ambiguous	(0) 15, 16; (+) 2, 6, 7, 8, 17, 19, 22
	Terms of trade index; temporary/permanent	+/0 or -/0	(+) 7, 15 / (+) 7, 15
	Income inequality	Ambiguous	(0) 3, 15
	Tourism revenues	Ambiguous
	Personal remittances	Ambiguous	(0) 16
Wealth	Household wealth	-	(0) 2, 6; (-) 17
Wealth	Home ownership	-	(0) 16
Rate of return	Real interest rate	Ambiguous	(-) 7, 8; (0) 1, 2, 4, 5, 6, 9, 14, 19; (+) 11, 15, 18
Rate of return	Government bond yield	Ambiguous	(-) 16
Uncertainty	Inflation	Ambiguous	(-) 16; (0) 1, 2, 3, 8; 14, 16, 19; (+) 4, 7, 11, 13, 15, 17, 18
	Unemployment rate	+	(0) 18; (+) 13, 16, 21
	GDP volatility	+	(0) 17
	Real oil price	-	(-) 15; (0) 19
	Consumer confidence	-	(-) 23
Financial liberalization	Loans to households	-	(-) 3, 5, 7, 9, 12, 17, 19; (0) 15
	Market capitalization	Ambiguous
	Flow of loans to households	-	(-) 15
Foreign borrowing constraints	Capital account deficit	-	(-) 1, 2, 3, 10; (+) 18
Foreign borrowing constraints	Capital flow restrictions	+	(0) 7, 15
Demography	Young age dependency (a)	-	(-) 7, 12
	Old age dependency (b)	-	(-) 4, 7, 13, 14, 15, 19, 20; (0) 8, 11, 12, 21
	Age dependency (a+b)	-	(-) 2, 3, 10; (0) 5, 6, 16
	Prime savers	+
	Urbanization rate	-	(-) 3, 7, 11, 12, 15; (0) 19; (+) 17
	Life expectancy	+	(0) 16; (+) 19
	Participation of +65 in labour market	-	(+) 21
Fiscal policy	Budget balance	-	(-) 2, 5, 6, 13, 16, 18, 19, 22
	Public saving	-	(-) 1, 3, 4, 7, 8, 10, 14, 17; (0) 15
	Public debt	-	(-) 2, 6, 13, 16
Government expenditure	Welfare expenditures	Ambiguous	(-) 2, 6, 13, 16
	Health expenditures	Ambiguous	(-) 19; (0) 15
	Education expenditures	Ambiguous	(0) 15
	Social protection expenditures	Ambiguous	(-) 3, 4, 5, 16, 21

Notes: (1) Corbo and Schmidt-Hebbel (1991), (2) Masson,Bayoumi and Samiei (1995), (3) Edwards (1996), (4) Callen and Thimann (1997), (5) Baillu and Reisen (1998), (6) Haque, Pesaran and Sharma (1999), (7) Loayza, Schmidt-Hebbel and Servén (2000), (8) de Serres and Pelgrin (2003), (9) Bandiera et al (2000), (10) Schrooten and Stephan (2005), (11) Niculescu-Aron and Mihaescu (2012), (12) Samwick (2000), (13) Kessler, Perelman and Pestieau (1993), (14) OECD (2001), (15) Grigoli, Herman and Schmidt-Hebbel (2014), (16) Rocher and Stierle (2015) (17) Kolasa and Liberda (2015), (18) Kukk and Staehr (2015), (19) Hernando et al. (2018), (20) Kharazi et al. (2022), (21) Fredriksson and Staal (2021), (22) Oinonen and Viren (2022), (23) Vanlaer, Bielen and Marneffe (2020).

Table 2
Correlation matrix of core household saving determinants

	Household saving	Household disposable income	Real GDP growth	Terms of trade index	Age dependency	Real interest rate	Loans to households	Budget balance	Inflation	Consumer confidence
Household saving	1.00	0.54	-0.43	0.51	0.10	0.20	0.38	0.12	-0.41	0.25
Household disposable income	0.45	1.00	-0.29	0.36	0.36	0.11	0.33	0.25	-0.54	-0.05
Real GDP growth	-0.30	-0.39	1.00	-0.34	-0.17	-0.30	-0.39	0.12	0.41	0.24
Terms of trade index	0.43	0.42	-0.18	1.00	-0.14	0.10	0.08	0.08	-0.32	0.40
Age dependency	0.11	0.29	-0.05	0.02	1.00	-0.08	0.48	0.18	-0.01	-0.14
Real interest rate	0.06	-0.22	-0.28	-0.15	-0.17	1.00	0.03	-0.32	-0.31	0.00
Loans to households	0.31	0.42	-0.38	0.11	0.31	-0.03	1.00	0.25	-0.43	-0.24
Budget balance	-0.09	0.07	0.32	0.01	0.07	-0.18	0.00	1.00	0.05	0.21
Inflation	-0.05	-0.17	0.04	-0.20	-0.08	0.06	-0.09	0.10	1.00	-0.15
Consumer confidence	-0.08	-0.01	0.54	0.00	0.08	-0.28	-0.15	0.43	-0.04	1.00

Note: Panel sample in lower triangle, cross section in upper triangle. Household saving refers to household saving in % of household disposable income. Household disposable income and real GDP growth as per capita. Loans to households and governments' budget balance in % of GDP.

Table 3
Determinants of household saving, different estimators

	(1)	(2)	(3)	(4)	(5)	(6)
	OLS FE		LSDVc			GMM
	with country effects	with time and country effects	Arellano-Bond	Anderson-Hsiao	Blundell-Bond	Arellano-Bond GMM
Lag dependent variable	0.605***	0.726***	0.647***	0.649***	0.675***	0.569***
Lag dependent variable	(-0.060)	(-0.057)	(-0.034)	(-0.037)	(-0.032)	(-0.055)
Household disposable income	0.073***	0.057***	0.071***	0.075***	0.070***	0.072***
Household disposable income	(-0.086)	(-0.013)	(-0.079)	(-0.091)	(-0.076)	(-0.094)
Real GDP growth	0.407***	0.473***	0.415***	0.418***	0.425***	0.377***
Real GDP growth	(-0.042)	(-0.040)	(-0.043)	(-0.047)	(-0.040)	(-0.044)
Terms of trade index	0.021	0.019	0.013	0.009	0.017	0.026
Terms of trade index	(-0.027)	(-0.019)	(-0.028)	(-0.031)	(-0.027)	(-0.029)
Age dependency	0.067	-0.034	0.061	0.065	0.053	0.072
Age dependency	(-0.046)	(-0.042)	(-0.041)	(-0.048)	(-0.040)	(-0.049)
Real interest rate	0.360***	0.396***	0.356***	0.360***	0.360***	0.337***
Real interest rate	(-0.064)	(-0.056)	(-0.050)	(-0.054)	(-0.047)	(-0.063)
Loans to households	-0.052**	-0.023**	-0.048***	-0.054***	-0.049***	-0.055***
Loans to households	(-0.019)	(-0.015)	(-0.013)	(-0.014)	(-0.012)	(-0.019)
Budget balance	-0.254***	-0.107***	-0.241***	-0.243***	-0.237***	-0.285***
Budget balance	(-0.059)	(-0.036)	(-0.040)	(-0.044)	(-0.038)	(-0.061)
Inflation	-0.424	-0.560	-0.467	-0.289	-0.333	-0.293
Inflation	(-0.020)	(-0.014)	(-0.015)	(-0.012)	(-0.011)	(-0.012)
Consumer confidence	-0.071***	-0.067***	-0.072***	-0.072***	-0.074***	-0.068***
Consumer confidence	(-0.019)	(-0.016)	(-0.015)	(-0.017)	(-0.014)	(-0.020)
Time fixed effects	No	Yes	No	No	No	No
Country fixed effects	Yes	Yes	Yes	Yes	Yes	Yes
N	535	535	535	535	535	509
r2	0.674	0.793	.	.	.	.

Notes: Standard errors in parentheses are corrected for heteroskedasticity and autocorrelation of error effects. These estimations include the Windmeijer's correction of the covariance matrix. All estimates include a constant effect. ***, **, * next to the coefficients indicate a 1, 5 and 10% significance level. The lagged dependent variable (i.e., household saving rate) refers to the lagged rate by one time period (year). Coefficients of log-transformed variables (household disposable income, terms of trade index, inflation and consumer confidence) have already been divided by 100.

Table 4
Alternative estimations including interactive effects for defined crisis times (GFC and Covid-19) and country groups (EA, CEE and Croatia)

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
	Baseline	X=2020	X=2021	X=2020-2021	X=2008-2010	X=EA	X=CEE	X=Croatia
Lag dependent variable	0.569***	0.693***	0.637***	0.682***	0.592***	0.507***	0.645***	0.574***
Lag dependent variable	(-0.055)	(-0.051)	(-0.062)	(-0.052)	(-0.054)	(-0.102)	(-0.076)	(-0.056)
Disposable household income	0.072***	0.058***	0.076***	0.063***	0.074***	0.075***	0.071***	0.072***
Disposable household income	(-0.094)	(-0.077)	(-0.083)	(-0.070)	(-0.093)	(-0.247)	(-0.177)	(-0.194)
Real growth of GDP	0.377***	0.415***	0.427***	0.422***	0.419***	0.363***	0.414***	0.385***
Real growth of GDP	(-0.044)	(-0.050)	(-0.050)	(-0.053)	(-0.064)	(-0.069)	(-0.081)	(-0.044)
Terms of trade index	0.026	0.013	0.037	0.014	0.010	-0.042	0.082	0.025
Terms of trade index	(-0.029)	(-0.020)	(-0.033)	(-0.021)	(-0.027)	(-0.061)	(-0.050)	(-0.030)
Age dependency	0.072	-0.003	0.135***	0.015	0.049	0.144	-0.037	0.072
Age dependency	(-0.049)	(-0.038)	(-0.050)	(-0.040)	(-0.052)	(-0.100)	(-0.069)	(-0.048)
Real interest rate	0.337***	0.383***	0.342***	0.391***	0.339***	0.373***	0.096***	0.333***
Real interest rate	(-0.063)	(-0.059)	(-0.059)	(-0.061)	(-0.077)	(-0.124)	(-0.103)	(-0.063)
Loans to households	-0.055***	-0.027*	-0.055***	-0.034**	-0.059***	-0.016	-0.059***	-0.055***
Loans to households	(-0.019)	(-0.016)	(-0.017)	(-0.014)	(-0.017)	(-0.043)	(-0.019)	(-0.019)
Budget balance	-0.285***	-0.141***	-0.312***	-0.168***	-0.347***	-0.394***	-0.272***	-0.285***
Budget balance	(-0.061)	(-0.038)	(-0.069)	(-0.044)	(-0.050)	(-0.073)	(-0.062)	(-0.062)
Inflation	-0.003	0.018	0.008	0.019***	-0.012	-0.033***	-0.014**	-0.016**
Inflation	(-0.011)	(-0.011)	(-0.012)	(-0.012)	(-0.012)	(-0.018)	(-0.008)	(-0.003)
Consumer confidence	-0.068***	-0.052***	-0.069***	-0.053***	-0.064***	-0.063**	-0.069***	-0.076***
Consumer confidence	(-0.197)	(-0.167)	(-0.208)	(-0.163)	(-0.181)	(-0.254)	(-0.228)	(-0.197)
X*Lag dependent variable		-0.065*		-0.262***	-0.070***	0.09	-0.117***	-0.061***
X*Lag dependent variable		(-0.035)		(-0.065)	(-0.023)	(-0.118)	(-0.106)	(-0.056)
X*Disposable household income		0.004	0.024	0.0547***	-0.053***	0.023***	0.006	0.065
X*Disposable household income		(-0.024)	(-0.027)	(-0.021)	(-0.008)	(-0.026)	(-0.020)	(-0.009)
X*Real growth of GDP		0.132	0.008	-0.225	-0.162**	0.059***	-0.005	-0.005
X*Real growth of GDP		(-0.225)	(-0.216)	(-0.204)	(-0.082)	(-0.092)	(-0.104)	(-0.044)
X*Terms of trade index		0.365	-0.119	-0.014	0.095***	0.132	-0.077	0.067***
X*Terms of trade index		(-0.209)	(-0.111)	(-0.083)	(-0.033)	(-0.083)	(-0.060)	(-0.030)
X*Age dependency		-0.078	-0.115	-0.072	0.186***	-0.112	0.182**	0.164***
X*Age dependency		(-0.072)	(-0.061)	(-0.063)	(-0.043)	(-0.116)	(-0.081)	(-0.048)
X*Real interest rate		0.079	-0.072	0.217	-0.218***	-0.028	0.353***	0.028***
X*Real interest rate		(-0.451)	(-0.257)	(-0.273)	(-0.076)	(-0.143)	(-0.129)	(-0.063)
X*Loans to households		0.016	0.001	-0.024	0.006	-0.045	0.045	-0.078
X*Loans to households		(-0.037)	(-0.024)	(-0.027)	(-0.008)	(-0.047)	(-0.037)	(-0.019)
X*Budget balance		-0.305***	0.149	-0.017***	-0.133***	0.134	0.031	-0.037
X*Budget balance		(-0.174)	(-0.149)	(-0.143)	(-0.076)	(-0.099)	(-0.090)	(-0.062)
X*Inflation		-0.061	-0.006***	-0.064***	0.001	0.036	-0.046***	-0.055***
X*Inflation		(-0.076)	(-0.084)	(-0.056)	(-0.033)	(-0.025)	(-0.026)	(-0.011)
X*Consumer confidence		-0.075***	0.014	-0.017***	-0.080***	-0.082	-0.043***	-0.049***
X*Consumer confidence		(-0.094)	(-0.074)	(-0.057)	(-0.023)	(-0.037)	(-0.038)	(-0.097)
Observations	509	509	509	509	509	509	509	509
AR(1) p-val	0.000	0.001	0.000	0.000	0.000	0.000	0.000	0.000
AR(2) p-val	0.354	0.405	0.4	0.364	0.231	0.325	0.398	0.351
Sargan p-val	0.436	0.447	0.277	0.362	0.37	0.309	0.35	0.32

Table A1
Descriptive statistics, definitions and sources of variables

Category	Variable	Description	No. of observations	Mean	St. Dev.	Min	Max	Main source for variable construction
Dependent variable	Household saving rate	Household saving to disposable income adjusted for pension funds	572	9.1	6.6	-20.7	25.2	Eurostat; estimate for Croatia
Income	Household disposable income	Real household disposable income (in PPS) per capita	572	17,724.5	6,128.5	4,137.8	35,607.4	Eurostat; estimate for Croatia
	Real GDP growth	Real GDP per capita growth rate	572	2.2	3.6	-13.8	18.2	Eurostat
	Terms of trade	Terms of trade index	572	98.6	5.3	64.4	113.8	Ameco
	Gini index	Index of the distribution of income across a population	504	29.7	4.1	20.9	40.8	Eurostat
	Tourism	Contribution of tourism to the GDP (% of GDP)	572	9.9	4.5	1.2	25.0	WTTC
	Remittances	Personal remittances from abroad (% of GDP)	520	1.3	1.4	0.1	8.2	World Bank
	Pension	Net equity changes in pension fund reserves	572	1.0	1.3	-0.3	5.0	Eurostat
Wealth	Household wealth	Net household wealth (% GDP)	571	106.0	58.9	20.4	325.0	Eurostat; calculations
Wealth	Home ownership	Percentage of population owning a home	425	75.7	10.6	49.5	97.6	Eurostat
Rate of return	Real interest rate	Real short term interest rate on deposits adjusted with GDP deflator	561	-0.3	2.8	-9.5	25.2	Ameco
Rate of return	Bond yield	The yield spread of the government bond and 10-year German bond	551	1.3	1.9	-4.0	21.0	Eurostat; calculations
Uncertainty	Inflation	Deviation of inflation in relation to the historical average	572	100.0	9.8	79.6	132.8	Eurostat; calculations
	Unemployment rate	Unemployment rate in % of the total labour force; ILO	572	8.6	4.4	1.8	27.5	World Bank
	GDP volatility	Volatility of real GDP growth using the GARCH method	569	0.0	1.0	-3.7	3.1	Eurostat; calculations
	Real oil price	The real price of oil as a proxy of global events	572	78.8	31.8	37.2	136.6	EIA
	Consumer confidence	Deviation of consumer confidence in relation to the historical average	572	98.2	16.4	70.0	125.2	DG ECFIN survey; calculations
Financial liberalization	Loans to households	Share of domestic credit to households (% of GDP)	572	49.2	29.2	0.9	141.6	Eurostat
	Flow of credit to households	Household loans based on transactions (% of GDP)	572	2.7	3.3	-5.9	18.3	Eurostat
	Market capitalization	Share of market capitalization (% of GDP)	572	49.9	43.6	0.6	326.4	World Bank, World Foreign Exchanges
International financial integration	Capital account balance	Capital account balance (% of GDP)	544	-0.8	5.6	-23.9	14.4	World Bank
	Chinn-Ito index	A measure of financial openness	569	0.9	0.2	0.2	1.0	Portland State University¹
	Quinn index	Capital account openness index	520	0.1	0.2	0.0	1.0	Columbia University²
Demographics	Young-age dependency ratio	Share of young people aged 15-24 relative to working population (a)	569	12.2	1.7	8.8	17.1	Eurostat; calculations
	Old-age dependency ratio	Share of +65 aged relative to working population (b)	572	31.5	5.2	10.8	44.7	Eurostat; calculations
	Prime savers	Share of the population aged 45-54 in relation to the total population	572	26.2	2.1	20.7	30.5	Eurostat; calculations
	Age dependency	a+b	572	64.4	5.8	52.3	80.4	Eurostat
	Participation of +65	Share of the population over 65 years of age that is in labour market	559	5.6	4.0	0.9	34.1	Eurostat; calculations
	Life expectancy	Life expectancy at 65 years of age	565	15.4	6.0	2.0	22.0	Eurostat
	Urbanization rate	Share of the population living in urban areas of the country	572	71.8	12.2	50.8	98.1	World Bank
Fiscal policy	Budget balance	Government surplus/deficit (% of GDP)	572	-2.6	3.6	-32.1	6.9	Eurostat
	Public saving	Public savings (% of GDP)	571	1.6	3.2	-10.0	10.4	Eurostat
	Public debt	Consolidated gross government debt (% of GDP)	570	58.9	35.9	3.8	206.3	Eurostat
	Welfare	Government expenditures for soc protection, education and health (% of GDP)	526	27.8	5.4	16.6	41.8	Eurostat; calculations
	Public health expenditure	Government expenditures for healthcare (% of GDP)	526	6.2	1.3	3.2	10.1	Eurostat
	Public education expenditure	Government expenditures for education (% of GDP)	526	5.1	1.0	2.8	7.1	Eurostat
	Social protection	Government expenditures for social protection (% of GDP)	565	17.0	4.4	7.9	28.6	Eurostat

¹ Chinn and Ito (2006).

² Fernandez et al. (2016)

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