The Risk of Divorce and Household Saving Behavior

48 Pages Posted: 6 Oct 2008

See all articles by Libertad Gonzalez

Libertad Gonzalez

Universitat Pompeu Fabra; Barcelona Graduate School of Economics (Barcelona GSE); IZA Institute of Labor Economics

Berkay Özcan

Yale University

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Abstract

We analyze the impact of an increase in the risk of divorce on the saving behaviour of married couples. From a theoretical perspective, the expected sign of the effect is ambiguous. We take advantage of the legalization of divorce in Ireland in 1996 as an exogenous increase in the likelihood of marital dissolution. We analyze the saving behaviour over time of couples who were married before the law was passed. We propose a difference-in-differences approach where we use as comparison groups either married couples in other European countries (not affected by the law change), or Irish families who did not experience a significant increase in the expected risk of divorce (such as very religious families, or single individuals). Our results suggest that the increase in the risk of divorce brought about by the law was followed by an increase in the propensity to save of married couples, consistent with a rise in precautionary savings interpretation. An increase in the risk of marital dissolution of about 40 percent led to a 7 to 13 percent rise in the proportion of married couples reporting positive savings.

Keywords: divorce, saving, marriage, divorce law

JEL Classification: J12, D10, K36, E21, D91

Suggested Citation

Gonzalez, Libertad and Özcan, Berkay, The Risk of Divorce and Household Saving Behavior. IZA Discussion Paper No. 3726, Available at SSRN: https://ssrn.com/abstract=1278927 or http://dx.doi.org/10.2139/ssrn.1278927

Libertad Gonzalez (Contact Author)

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE)

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Berkay Özcan

Yale University ( email )

493 College St
New Haven, CT CT 06520
United States

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