Income Distribution and Household Saving: A Non-Monotonic Relationship

Philipp Scheuermeyer and Peter Bofinger

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: Based on a panel of 29 advanced economies, this paper documents a non-monotonic link between inequality and the aggregate household saving rate. It finds that, at a low level of inequality, more inequality is associated with higher saving; but it also shows that a negative relationship between inequality and saving prevails, where inequality is high. Using different empirical approaches, we locate the turning-point at a net income Gini coefficient around 30. Moreover, we show that the relationship between inequality and saving depends on financial market conditions. While inequality increases saving, when credit is scarce, it tends to reduce saving at high levels of financial depth.

JEL-codes: C23 D31 E21 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145901

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