Please use this identifier to cite or link to this item: https://doi.org/10.1142/S0217590802000432
Title: Precautionary savings and CPF contributions in the presence of a borrowing constraint
Authors: Woon, L.C.
Kapur, B.K. 
Keywords: Borrowing constraints
Central provident fund
Precautionary savings
Issue Date: Apr-2002
Source: Woon, L.C., Kapur, B.K. (2002-04). Precautionary savings and CPF contributions in the presence of a borrowing constraint. Singapore Economic Review 47 (1) : 129-152. ScholarBank@NUS Repository. https://doi.org/10.1142/S0217590802000432
Abstract: The neutrality result that total private savings (voluntary and compulsory) are invariant to a change in the employee's CPF contribution rate has been derived by Hoon (1991) and Liew (2000), both of whom assumed perfect capital markets. It was shown by Lim (1994) to hold in a model with borrowing constraints as long as the latter are nonbinding. In this article, we integrate the phenomena of income uncertainty (from Liew) and borrowing constraints (from Lim) in a stochastic, intertemporal optimisation model. We demonstrate the existence of precautionary savings and, contrary to received thinking, the nonneutrality result of total savings to the employee's CPF contribution rate even for workers with positive voluntary savings. The broader implications of this result are also discussed.
Source Title: Singapore Economic Review
URI: http://scholarbank.nus.edu.sg/handle/10635/133185
ISSN: 02175908
DOI: 10.1142/S0217590802000432
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