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Do Savings Predict Death ? Precautionary Savings during an Epidemic

Using a four-round panel dataset from Kagera, Tanzania, we examine whether households that suffer a death engage in precautionary savings to smooth consumption over the crisis. Under Deaton’s buffer-stock hypothesis, savings equal the present value of future falls in income. In that case, we should see greater accumulation of assets among households which anticipate a death, and liquidation of assets following the death. We construct a sample of households by matching on the probability of suffering a death (the “propensity score”). We control for possible crowding out of own savings by including the receipt of transfers and credit as instrumented variables, and we bootstrap both the first-stage and the second-stage multinomial logits 1000 times. We find that households do not behave according to the buffer-stock model, and that the consequences of the death are more severe among poorer households than wealthier.