The geography of wealth: shocks, mobility, and precautionary savings

Maximiliano Dvorkin and Brian Greaney

No 2024-033, Working Papers from Federal Reserve Bank of St. Louis

Abstract: The spatial distribution of wealth in the United States is very heterogeneous. We study the spatial distribution of wealth in a country and how it is shaped by regional earning characteristics and mobility frictions. For this, we develop a tractable model of consumption, savings, and location choice with many regions, incomplete markets, and heterogeneous agents facing persistent and transitory income shocks. Our theory extends a workhorse macroeconomic model of consumption and savings under uncertainty to an economy with multiple labor markets and costly mobility. Despite complex spatial and individual heterogeneity, we characterize the optimal consumption, savings, and mobility decisions of workers in closed form. Mobility frictions increase precautionary savings as workers hedge against consumption fluctuations generated by moving decisions. The spatial distribution of wealth is primarily driven by the interaction between persistent income shocks, saving behavior, and worker sorting over locations. Our results highlight the importance of accounting for worker mobility and regional heterogeneity in earnings dynamics when studying the spatial distribution of wealth.

Keywords: mobility; precautionary savings; spatial equilibrium; wealth; inequality (search for similar items in EconPapers)
JEL-codes: E21 F16 J61 R12 R23 (search for similar items in EconPapers)
Pages: 76 pages
Date: 2024-09-30, Revised 2025-09-25
New Economics Papers: this item is included in nep-dge, nep-geo, nep-lab and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:98888

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DOI: 10.20955/wp.2024.033

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