The Impact of Policy Uncertainty on Consumption and Saving Behavior: Evidence from a survey on consumers

Uncertainty over the social security and tax system is pointed out as a source of stagnant household consumption at the aggregate level in Japan. This study presents empirical finding on this issue by using original survey data of 10,000 individuals. The results indicate that individuals are highly uncertain over the future course of social security policies and that the effects of such uncertainty on their life are perceived to be large. The uncertainty induces increased saving as a precautionary motive, and the effect is prominent for low-income individuals. These results suggest that improving long-term predictability in the social security and tax system may expand current household consumption.

The English version of this paper is 17-E-075.