Michelle Rendall
Marriage, Divorce and Savings: Don't Let An Economist Choose Your Spouse

Abstract:This paper considers the implications of marital uncertainty on aggregate household savings behavior. To this end, an infinite horizon model with perpetual youth that features uncertainty over marriage quality is developed. Similarly to Cubeddu and Rios-Rull (1997), I test how much of the fall in the savings rate from the 1960s to the 1980s can be explained by the changing United States demographic composition, specifically the rise in divorce rates and the fall in marriage rates. It is assumed that these demographic changes are driven primarily by the shrinking gender wage gap and the relaxation of divorce-laws. Contrary to a model with exogenous marital risk, the results suggest that the choice of marriage and divorce has a non-negligible effect on savings behavior, where the changing demographics combined with the shrinking wage gap can account for roughly 45 percent of the higher savings rate in the 1960s.

JEL: E21, D14, J12.
Keywords:Savings, Divorce.



Download Full Text