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The Effect of Aspirations, Habits, and Social Security on the Distribution of Wealth

Jordi Caballe () and Ana Moro-Egido ()

No 352, Working Papers from Barcelona Graduate School of Economics

Abstract: In this paper, we analyze how the introduction of habits and aspirations affects the distribution of wealth when individuals' labor productivity is subject to idiosyncratic shocks and bequests arise from a joy-of-giving motive. In the presence of either bequests or aspirations, labor income shocks are transmitted intergenerationally and this transmission, together with the contemporaneous income shocks, determines the stationary distribution of wealth. We show that the introduction of aspirations increases both the intragenerational variability of wealth and the corresponding degree of intergenerational mobility. The opposite result holds when habits are introduced. Finally, we discuss how aspirations and habits interact with the redistributive features of an unfunded social security system.

Keywords: aspirations; Habits; Wealth Distribution; Social Security (search for similar items in EconPapers)
JEL-codes: D31 E21 E62 (search for similar items in EconPapers)
Date: 2008-06
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Working Paper: The Effect of Aspirations, Habits, and Social Security on the Distribution of Wealth (2008) Downloads
Working Paper: The Effect of Aspirations, Habits, and Social Security on the Distribution of Wealth (2008) Downloads
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