The Effect of Releasing the Only-Child Policy on Household Saving in China: Evidence and Mechanisms

I worked as an independent researcher at University of California, Berkeley to conduct this research (Aug 2023 - Dec 2023).

I am very grateful to Gerard Roland and David Wu for their excellent guidance.

This paper utilized 2016 universal two-child policy as an exogenous policy shock to investigate changes in household saving rates. I constructed a panel using original CFPS datasets from 2012 to 2018 and applied the DID methodology. The main conclusion is that the relaxation of OCP resulted in a 5.5% increase in the household savings rate, which was different from existing studies. By conducting heterogeneity tests, I showed that the policy had substantial impact on low-income groups and almost no effect on high-income groups, suggesting the potential mechanism of the policy’s effect lay in families saving in preparation for future childbirth.

This paper is honored as an outstanding paper by National Training Base Conference for Foundational Talent in Economics hosted by the Ministry of Education, and is awarded with second prize for Outstanding Undergraduate Academic Paper (Best among junior students) by School of Economics, Fudan University.

This paper is attached here.

Abstract:
China’s savings rate is notably high, where household savings play a dominant role, and the relationship between population policy and household savings rate has been widely discussed. This paper utilizes China’s 2016 Universal Two-Child Policy as an exogenous policy shock, setting up a difference-in-differences model, and empirically tests that relaxing the family planning policy will lead to an increase in household savings. Furthermore, this effect is more pronounced in families with low income, low assets, and those where the first child is a girl. The conclusion from this paper differs from previous research, suggesting that the effect of population policy on household saving may be dynamic and changing over time.