Income Inequality and Saving

Francisco Alvarez‐Cuadrado and Mayssun El‐Attar Vilalta
Authors registered in the RePEc Author Service: Francisco Alvarez-Cuadrado ()

Oxford Bulletin of Economics and Statistics, 2018, vol. 80, issue 6, 1029-1061

Abstract: Over the last three decades, the average income for the bottom half of the US distribution increased by 8% while their average saving rate decreased by 8 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.

Date: 2018
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Citations: View citations in EconPapers (8)

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https://doi.org/10.1111/obes.12236

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Working Paper: Income Inequality and Saving (2012)
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