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Review of Finance Vol. 23 No. 5 2019

Social Norms and Household Savings Rates in China

Yvonne Jie Chen1; Zhiwu Chen2; Shijun He3

1 National University of Singapore Lee Kuan Yew School of Public Policy, · 2 University of Hong Kong Faculty of Business and Economics, · 3 Southwestern University of Finance and Economics School of Economics, and the China Center for Behavioral Economics and Finance

Abstract

We study the effects of Confucian social norms on savings rates in China. In our simple two-period model, parents have the option to invest in either a risk-free asset or their children’s human capital. We assume that the filial piety norms and thus the enforcement mechanisms for supporting old-age parents differ across regions. Consequently, the probability of children’s non-performance of their repayment obligations to parents and the returns parents can expect from investing in their children vary. We test the model predictions using data from the China Household Finance Survey. We find that stronger Confucian social norms reduce the gap in the savings rate between families with sons and with daughters. Modeling default by children as a function of the prevailing social norms gives us the flexibility to study the impacts of declining Confucian influence on consumption–savings trends in China.

DOI
10.1093/rof/rfy029
Volume
23
Issue
5
Pages
961-991
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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