279/2016 Michael Callen, Suresh de Mel, Craig McIntosh and Christopher Woodruff
When households increase their deposits in formal bank savings accounts, what is the source of the money? We combine high-frequency surveys with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. We find that the headwaters of formal savings are in sacrificed leisure time: households work more, with evidence that improved savings options generate an increase in labour effort in both self-employment and the wage market. The results are consistent with a standard neo-classical model of the effect of real interest rate changes on intertemporal labour allocation, and suggest that the labour allocation channel is an important mechanism linking savings opportunities to income.
Culture and Development
The Review of Economic Studies