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Do the Rich Save More in Canada?

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Author Info

  • Sule Alan
  • Kadir Atalay
  • Thomas F. Crossley

Abstract

This paper is an attempt to answer the long standing question of whether households with higher lifetime income save a larger fraction of their income. The major difficulty in empirically assessing the relationship between lifetime incomes and saving rates is to construct a credible proxy for lifetime income. The Canadian Family Expenditure Survey (FAMEX) provides us with both unusually good data on savings rates and potential instruments with which we can construct reliable lifetime income proxies. Our empirical analysis suggests that the estimated relationship between saving rates and lifetime incomes is sensitive to the instrument used to proxy lifetime income. Nevertheless, our preferred estimates indicate that, except for poorest households (who simply do not save), saving rates do not differ substantially across lifetime income groups.

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File URL: http://socserv.mcmaster.ca/sedap/p/sedap153.pdf
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Bibliographic Info

Paper provided by McMaster University in its series Social and Economic Dimensions of an Aging Population Research Papers with number 153.

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Length: 31 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:mcm:sedapp:153

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Keywords: saving rates; lifetime income; permanent income;

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References

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  1. Sule Alan & Kadir Atalay & Thomas F. Crossley, 2006. "Do the Rich Save More in Canada?," Quantitative Studies in Economics and Population Research Reports 406, McMaster University.
  2. Mark Huggett & Gustavo Ventura, 1997. "Understanding Why High Income Households Save More Than Low Income Households," Working Papers 9701, Centro de Investigacion Economica, ITAM.
  3. John Burbidge & James B. Davies, 1994. "Household Data on Saving Behavior in Canada," NBER Chapters, in: International Comparisons of Household Saving, pages 11-56 National Bureau of Economic Research, Inc.
  4. B. Douglas Bernheim & John Karl Scholz, 1993. "Private Saving and Public Policy," NBER Chapters, in: Tax Policy and the Economy, Volume 7, pages 73-110 National Bureau of Economic Research, Inc.
  5. Peter A. Diamond & Johannes Spinnewijn, 2009. "Capital Income Taxes with Heterogeneous Discount Rates," NBER Working Papers 15115, National Bureau of Economic Research, Inc.
  6. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
  7. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, May.
  8. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers 03-95, Wharton School Rodney L. White Center for Financial Research.
  9. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
  10. Garry Barrett & Peter Levell & Kevin Milligan, 2013. "A Comparison of Micro and Macro Expenditure Measures Across Countries Using Differing Survey Methods," NBER Working Papers 19544, National Bureau of Economic Research, Inc.
  11. Hurd, Michael D, 1987. "Savings of the Elderly and Desired Bequests," American Economic Review, American Economic Association, vol. 77(3), pages 298-312, June.
  12. Kevin Milligan, 2002. "Tax-preferred savings accounts and marginal tax rates: evidence on RRSP participation," Canadian Journal of Economics, Canadian Economics Association, vol. 35(3), pages 436-456, August.
  13. John Burbidge & James B. Davies, 1994. "Government Incentives and Household Saving in Canada," NBER Chapters, in: Public Policies and Household Savings, pages 19-56 National Bureau of Economic Research, Inc.
  14. Engelhardt, Gary V, 1996. "Tax Subsidies and Household Saving: Evidence from Canada," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1237-68, November.
  15. John Burbidge & Deborah Fretz & Michael R. Veall, 1998. "Canadian and American Saving Rates and the Role of RRSPs," Canadian Public Policy, University of Toronto Press, vol. 24(2), pages 259-263, June.
  16. Matthew Brzozowski & Thomas F. Crossley, 2011. "Viewpoint: Measuring the well-being of the poor with income or consumption: a Canadian perspective," Canadian Journal of Economics, Canadian Economics Association, vol. 44(1), pages 88-106, February.
  17. 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.
  18. Carroll, Christopher D & Rhee, Byung-Kun & Rhee, Changyong, 1994. "Are There Cultural Effects on Saving? Some Cross-Sectional Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 685-99, August.
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Cited by:
  1. Sule Alan & Kadir Atalay & Thomas F. Crossley, 2013. "Do the Rich Save More in Canada?," Koç University-TUSIAD Economic Research Forum Working Papers 1312, Koc University-TUSIAD Economic Research Forum.

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