Income Inequality and Saving

Francisco Alvarez-Cuadrado (francisco.alvarez-cuadrado@mcgill.ca) and Mayssun El-Attar (mayssun.el-attarvilalta@mcgill.ca)
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Mayssun El-Attar: McGill University

No 7083, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Over the last three decades, average income for the bottom half of the US distribution increased by 8% while their average saving rate decreased by eight percentage points. Over the same period the US experienced a substantial increase in inequality and a continuous decrease in the aggregate saving rate. We propose an explanation based on interpersonal comparisons consistent with these trends. When households care about their consumption relative to others, individual saving rates decrease with reference income while aggregate saving decreases with income inequality. We provide evidence from the PSID and a panel of OECD countries consistent with these predictions.

Keywords: income inequality; relative consumption; saving (search for similar items in EconPapers)
JEL-codes: C23 D91 E21 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2012-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

Published - published in: Oxford Bulletin of Economics and Statistics, 2018, 80 (6), 1029 - 1061

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Journal Article: Income Inequality and Saving (2018)
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