Analysis of the precautionary saving motive using income risk as a measure of uncertainty: Evidence from Turkey

The precautionary saving motive is when consumers save money or accumulate more wealth to insure themselves against future income uncertainties or unforeseen events which may lead to any unexpected decrements in their future income (Warneryd, 1999; Keynes, 1936). This thesis aims to investigate the precautionary saving motive of Turkish households. I investigate this issue by constructing a pseudo panel data set from the Turkish Household Budget Survey data between 2011 and 2017. Then, I conduct a cohort-level analysis and explore the relationship between the variance of income growth and saving as well as total net-worth. So I use the variance of income growth as my measure of income risk and apply a pooled OLS regression to determine the impact of income growth variance on saving and total net-worth. The results show a positive impact of the variance of income growth on saving and total net-worth, thereby leading me to conclude that there's a precautionary saving motive among Turkish households.