The impact of two-child policy on household savings in China and mechanisms

ABSTRACT

One-child policy has been accused of causing high saving rates in China, and this article provides direct evidences for the economic impact of the two-child policy on savings. Using China Migrants Dynamic Survey, we find the two-child policy significantly reduces the household saving rates by 1.96 percentage points in average and by 4.88 percentage points if the rural and ethnic minority groups excluded, and we also use IV and propensity score matching (PSM) estimation methods to test the robustness. Furthermore, the study shows that the two-child policy has a heterogeneous effect on the saving rates decreasing, which mainly occurs in the local hukou population group. From this perspective, the policy has a comprehensive and sustainable impact. Through mechanism analysis, we clarify that the two-child policy affects savings by increasing expenditure insignificantly; in addition to the direct effect, it mainly affects savings by transiently reducing family income.

Abbreviations: IV: Instrumental variables; PSM: Propensity score matching; CPI: Consumer price index; OLS: Ordinary least squares

KEYWORDS:

• Two-child policy
• Local hukou population
• Migrants
• Savings
• One-child policy

JEL:

• J13
• E21
• O15
• N35
• J12

Acknowledgments

We sincerely appreciate helpful comments from the anonymous reviewers.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The three sectors are households, government and enterprises, and the share of household saving rose from 16.7% to 22.2% of the GDP between 1999 and 2007 (Yang, Zhang, and Zhou 2012).

² For robustness checks, we also limit our samples to couples with the mothers under 50, and the basic conclusion remains the same.

³ If we just use the sample of the rural and ethnic minority groups, the coefficient of twochild2014 is not significant anymore, and the results are not present here due to word limit..

⁴ According to Chan (2013), a migrant is the resident without local hukou and living in the place for more than 6 months. In China, most internal migrants migrate from rural to urban areas, so they are usually not bounded by the one-child policy.

Additional information

Funding

We thank the National Social Science Fund of China (Grant No.15CJL056) for the financial support.