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Understanding why high income households save more than low income households

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Author Info
Mark Huggett
Gustavo Ventura

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Abstract

This paper investigates why high income households in the United States save on average more than low income households in cross-section data. The three explanations considered are (1) age differences across households, (2) temporary earnings shocks, and (3) the structure of transfer payments. We use a calibrated life-cycle model to evaluate the quantitative importance of these explanations and find that age and the structure of transfers are quantitatively important in producing the cross-section pattern of United States savings rates. Temporary shocks are of secondary importance.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 106.

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Date of creation: 1995
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Handle: RePEc:fip:fedmem:106

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Keywords: Income ; Saving and investment;

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  1. Claudio Campanale, 2008. "Life-Cycle Portfolio Choice: The Role of Heterogeneity and Under-diversification," Working Papers. Serie AD 2008-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  2. Ian Hathaway & Sameer Khatiwada, 2008. "Do financial education programs work?," Working Paper 0803, Federal Reserve Bank of Cleveland. [Downloadable!]
  3. Maury Gittleman & Edward N. Wolff, 2000. "Racial Wealth Disparities: Is the Gap Closing?," Macroeconomics 0004058, EconWPA. [Downloadable!]
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  4. David Domeij & Paul Klein, 2002. "Private Pensions: To What Extent Do They Account for Swedish Wealth Inequality?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 503-534, July. [Downloadable!] (restricted)
  5. Martha A. Starr, 2006. "Macroeconomic dimensions of social economics: Saving, the stock market, and pension systems," Working Papers 2006-09, American University, Department of Economics. [Downloadable!]
  6. Annamaria Lusardi & Jonathan Skinner & Steven F. Venti, 2001. "Saving Puzzles and Saving Policies in the United States," JCPR Working Papers 220, Northwestern University/University of Chicago Joint Center for Poverty Research.
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  7. Kazutoshi Miyazawa, 2005. "Growth and Inequality: A Demographic Explanation," STICERD - Distributional Analysis Research Programme Papers 75, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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  8. Olovsson, Conny, 2004. "Social Security and the Equity Premium Puzzle," Seminar Papers 729, Stockholm University, Institute for International Economic Studies. [Downloadable!]
  9. Francis, Johanna L., 2007. "Wealth and the Capitalist Spirit," MPRA Paper 5985, University Library of Munich, Germany. [Downloadable!]
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  10. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "The Relative Income Hypothesis," CIRANO Working Papers 2008s-18, CIRANO. [Downloadable!]
  11. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "A Permanent Income Version of the Relative Income Hypothesis," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. Claudio Campanale, 2005. "Increasing Returns To Savings And Wealth Inequality," Working Papers. Serie AD 2005-20, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
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  13. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  14. Kai Zhao, 2009. "Social Security, Differential Fertility, and the Dynamics of the Earnings Distribution," UWO Department of Economics Working Papers 20091, University of Western Ontario, Department of Economics. [Downloadable!]
  15. Francesc Obiols-Homs & Carlos Urrutia, 2004. "Transitional Dynamics and the Distribution of Assets," Macroeconomics 0407020, EconWPA. [Downloadable!]
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