Understanding Why High Income Households Save More Than Low Income Households

Mark Huggett () and Gustavo Jaime Ventura ()

No 9701, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: This paper investigates why high income households save on average a higher fraction of income than do low income households in US cross-section data. The three explanations considered are (1) age differences across households, (2) temporary earnings shocks and (3) the structure of social security payments. We use a calibrated life-cycle model to evaluate the quantitative importance of these explanations. We find that age and the structure of social security payments are quantitatively important in replicating the pattern of average savings rates and income found in US cross-section data. Surprisingly, temporary shocks turn out to be of secondary importance.

Keywords: Distribution; Savings; Life Cycle (search for similar items in EconPapers)
JEL-codes: D3 E13 D91 (search for similar items in EconPapers)
Date: Written

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Related works:
Working Paper: Understanding why high income households save more than low income households (1995)
Journal Article: Understanding why high income households save more than low income households (2000)
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Persistent link: http://EconPapers.repec.org/RePEc:cie:wpaper:9701

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