Intertemporal decision making of a private household depends on its expected income distribution. Since an important feature of labour market institutions in modern welfare states is to provide cash transfers as income replacement in case of unemployment, it is hypothesised that unemployment benefits reduce the motive to save for precautionary reasons. Based on consumer sentiment data from the European Commission's consumer survey, this paper provides evidence that aggregate saving intentions are significantly influenced by unemployment benefits. It can be shown that higher benefits lower the intention to save.
Labour market institutions Unemployment benefits Precautionary savings Consumer confidence