Micro - Data Evidence on Family Size and Chinese Household Saving Rates

This paper examines the impact of family size on household saving. We first study a theoretical life-cycle model that includes finite lifetimes and saving for retirement and in which parents care about the consumption of their dependent children. The model implies a negative relationship between the number of dependent children in the family and the household’s saving rate. Then, we test the model’s implications using a new data set on household finances in China. We use the differential enforcement of the one-child policy across counties to address the endogeneity between household saving and fertility decisions within a standard two-stage least squares Tobit regression. We find that Chinese families with fewer dependent children have significantly higher saving rates. The regressions also indicate that saving rates vary with age and tend to be higher for households with more workers, higher education, better health, and more assets.