Faculty of Economics and Business Administration Publications Database

The Savings Behavior of East and West Germans - Theoretical Predictions and Empirical Evidence

Volume: 123
Number: 1
Pages: 209 - 220
Link External Source: Online Version
Year: 2003

We analyze whether the savings behavior of East and West Germans after German reunification can be explained by predictions from a life cycle consumption model. The life cycle hypothesis gives predictions for consumption and savings over the life cycle for a given expected income profile, taking retirement into account. Yet, for the East German population the economic environment changed dramatically and unexpectedly after German reunification, causing a reassessment of life cycle income and risk. In an empirical analysis, we find that the differences in savings behavior of East and West German age cohorts are in line with the life cycle hypothesis.