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Keeping up with the Zhangs: Relative income and wealth, and household saving behavior

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  • Gruber, Noam

Abstract

Research has shown high income households to have high saving rates. Using detailed Chinese household survey data, this study demonstrates that saving rates are determined by relative, rather than absolute, income level. Specifically, households with higher than the average income in their locality save a larger fraction of their income. To explain this finding, this study proposes a utility function that incorporates both relative consumption and relative wealth. This function not only generates higher saving rates by relatively high income households, but also predicts the observed correlation between economic growth and the aggregate saving rate on the national level.

Suggested Citation

  • Gruber, Noam, 2018. "Keeping up with the Zhangs: Relative income and wealth, and household saving behavior," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 77-95.
    • Handle: RePEc:eee:jmacro:v:55:y:2018:i:c:p:77-95
    DOI: 10.1016/j.jmacro.2017.10.001
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    References listed on IDEAS

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    1. Eine erneute Bestätigung der Relativeinkommenshypothese
      by Ekkehart Schlicht in Funktionale Staatsfinanzen on 2019-03-16 08:14:00

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    Cited by:

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    3. Severin Rapp, 2023. "Wealth distribution and household economies of scale: Do families matter for inequality?," Department of Economics Working Papers wuwp336, Vienna University of Economics and Business, Department of Economics.

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    More about this item

    Keywords

    Household saving; Life cycle models and saving; Wealth effects; Relative income hypothesis; Saving growth; Chinese savings;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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