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

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  • Jordi Caballé

    ()
    (Unitat de Fonaments de l’Anàlisi Economica and CODE, Universitat Autònoma de Barcelona.)

  • Ana I. Moro Egido

    ()
    (Department of Economic Theory and Economic History, University of Granada.)

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.

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File URL: http://www.ugr.es/~teoriahe/RePEc/gra/wpaper/thepapers08_02.pdf
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Bibliographic Info

Paper provided by Department of Economic Theory and Economic History of the University of Granada. in its series ThE Papers with number 08/02.

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Length: 28 pages
Date of creation: 09 Jun 2008
Date of revision:
Handle: RePEc:gra:wpaper:08/02

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Keywords: Aspirations; Habits; Wealth Distribution; Social Security.;

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References

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  7. Jordi Caballé & Luisa Fuster, 2000. "Pay-as-you-go social security and the distribution of bequests," Economics Working Papers 468, Department of Economics and Business, Universitat Pompeu Fabra.
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Cited by:
  1. Francisco Alvarez-Cuadrado & Ngo Van Long, 2009. "Envy And Inequality," Departmental Working Papers 2009-03, McGill University, Department of Economics.

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