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Do the Rich Save More?

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Author Info
Karen E. Dynan
Jonathan Skinner
Stephen P. Zeldes

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Abstract

The question of whether higherlifetime income households save a larger fraction of their income was the subject of much debate in the 1950s and 1960s, and while not resolved, it remains central to the evaluation of tax and macroeconomic policies. We resolve this long-standing question using new empirical methods applied to the Panel Study of Income Dynamics, the Survey of Consumer Finances, and the Consumer Expenditure Survey. We find a strong positive relationship between saving rates and lifetime income and a weaker but still positive relationship between the marginal propensity to save and lifetime income. There is little support for theories that seek to explain these positive correlations by relying solely on time preference rates, nonhomothetic preferences, or variations in Social Security benefits. There is more support for models emphasizing uncertainty with respect to income and health expenses, bequest motives, and asset-based means testing or behavioral factors causing minimal saving rates among low-income households.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 112 (2004)
Issue (Month): 2 (April)
Pages: 397-444
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Handle: RePEc:ucp:jpolec:v:112:y:2004:i:2:p:397-444

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  1. Michael D. Hurd & James P. Smith, 1999. "Anticipated and Actual Bequests," NBER Working Papers 7380, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Jeffrey B. Liebman, 2001. "Redistribution in the Current U.S. Social Security System," NBER Working Papers 8625, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Christopher D. Carroll, 1998. "Why Do the Rich Save So Much?," NBER Working Papers 6549, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February. [Downloadable!] (restricted)
  5. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
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  6. Horioka, C.Y. & Watanabe, W., 1996. "Why Do People Save? A Micro-Analysis of Motives for Household Saving in Japan," Papers 412, Osaka - Institute of Social and Economic Research.
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  7. Gilbert E. Metcalf, 2006. "Value-Added Tax," Discussion Papers Series, Department of Economics, Tufts University 0608, Department of Economics, Tufts University. [Downloadable!]
  8. Reinhart, Carmen & Ogaki, Masao & Ostry, Jonathan, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," MPRA Paper 6978, University Library of Munich, Germany. [Downloadable!]
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  9. Menchik, Paul L & David, Martin, 1983. "Income Distribution, Lifetime Savings, and Bequests," American Economic Review, American Economic Association, vol. 73(4), pages 672-90, September. [Downloadable!] (restricted)
  10. James P. Smith, 2004. "Inheritances and Bequests," Labor and Demography 0408012, EconWPA. [Downloadable!]
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  11. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1, pages 19-46. [Downloadable!] (restricted)
  12. James P. Smith, 1999. "Healthy Bodies and Thick Wallets: The Dual Relation between Health and Economic Status," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 145-166, Spring. [Downloadable!] (restricted)
  13. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-46, April. [Downloadable!] (restricted)
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  14. Venti, Steven F & Wise, David A, 1998. "The Cause of Wealth Dispersion at Retirement: Choice or Chance?," American Economic Review, American Economic Association, vol. 88(2), pages 185-91, May. [Downloadable!] (restricted)
  15. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  16. Michael D. Hurd & David A. Wise, 1989. "The Wealth and Poverty of Widows: Assets Before and After the Husband'sDeath," NBER Working Papers 2325, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "Does income inequality raise aggregate saving?," Journal of Development Economics, Elsevier, vol. 61(2), pages 417-446, April. [Downloadable!] (restricted)
  18. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-92, May. [Downloadable!] (restricted)
  19. Nelson, J.A., 1993. "On Testing for Full Insurance Using Consumer Expenditures Survey Data," Papers 93-02, California Davis - Institute of Governmental Affairs.
  20. Stoker, Thomas M, 1986. "Simple Tests of Distributional Effects on Macroeconomic Equations," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 763-95, August. [Downloadable!] (restricted)
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