The Wealth Distribution in a Precautionary Savings Model with Capital Income Risk

Hoang Khieu and Roberto Leon-Gonzalez

Annals of Economics and Statistics, 2024, issue 155, 45-90

Abstract: Explaining the evolution of the wealth distribution requires understanding the dynamics of consumption and savings. We analyze the dynamics of consumption and savings under uncertainty in labour income and the rate of return on wealth, which are two-state continuous time Markov processes. The rate of return is persistent and has a right-skewed distribution. We show that the wealth accumulation process has a stationary distribution if the (unconditional) expected change in the rate of return is sufficiently small or large. In particular, when the expected change in the rate of return is moderate, the wealth accumulation process is non-stationary.

Keywords: Dynamics of Wealth and Consumption; Stationary Wealth Distribution; Capital and Labour Income Risk; Precautionary Savings (search for similar items in EconPapers)
JEL-codes: C02 C61 E21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2024:i:155:p:45-90

DOI: 10.2307/48795037

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