The effects of transitory income shocks on saving behavior of Dutch households

Using the data collected in the DNB Household Survey, we estimate transitory income shocks of households using the identification strategy of Kovacs, Rondinelli, and Trucchi (2018). Their research is extended upon by using an income process based on the level of education of the household members. Then, the saving response to transitory income shocks is estimated using interval regression,
where differences in household characteristics and individual fixed effects are taken into account. It is found that lower education households do not have a significant saving response to transitory income shocks, whereas higher education household have a saving response to transitory income shocks which is significant, positive, and similar to their general saving response. These findings suggest that there exists a heterogeneous response to income shocks based on the level of education of individuals.