Income Distribution and Aggregate Saving: A Non-Monotonic Relationship

Peter Bofinger () and Philipp Scheuermeyer

No 11435, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Drawing on a panel of 29 advanced economies, this paper documents a concave and non-monotonic link between inequality and the aggregate household saving rate. We find that, at a low level of inequality, more inequality is associated with higher saving; but also show that a negative relationship between inequality and saving prevails, where inequality is high. Using different empirical approaches, we locate the turning-point, where the marginal effect of inequality turns from positive to negative, at a net income Gini coefficient of around 30. Moreover, we show that the relationship between inequality and saving also depends on financial market conditions: While inequality increases saving, when credit is scarce, it tends to reduce saving at high levels of credit. This paper primarily focuses on household saving, yet we also find some evidence for a non-monotonic effect of inequality on private saving, national saving, and the current account balance.

Keywords: Saving; Income distribution; Panel data; Non-linearities (search for similar items in EconPapers)
JEL-codes: C23 D31 E21 O5 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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