Savings from permanent and transitory income. The case of Polish households.

The paper analyses the impact of income uncertainty on household saving. Using a panel of Polish households for 1997-2000 we decompose uncertainty of household income into a variance of shocks to permanent income and a variance of shocks to transitory income. Then we regress household savings on the estimated measures of income uncertainty controlling for demographic and social variables. Our empirical results indicate that both measures of income uncertainty are statistically significant in predicting saving. The permanent income uncertainty affects savings more than the uncertainty of transitory income.