Why do the Rich Save More? A Theory and Australian Evidence
AbstractWe provide a theory to explain the existence of inequality in an economy where agents have identical preferences and have access to the same production technology. Agents consume a "utility" good and a "health" good which determines their subjective discount factor. Depending on initial distribution of capital the economy gets separated into different permanent-income groups. This leads to a testable hypothesis: "The rich save a larger proportion of their permanent income". We test this implication for the savings behaviour in Australia. We show that even after controlling for life-cycle characteristics permanent income and savings are positively correlated. An improvement in the health leads to a positive effect on savings behaviour.
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Bibliographic InfoPaper provided by University of Sydney, School of Economics in its series Working Papers with number 06-02.1.
Date of creation: Mar 2006
Date of revision:
Saving; Inter-temporal Choice; Health; Income Distribution;
Other versions of this item:
- Debajyoti Chakrabarty & Hajime Katayama & Hanna Maslen, 2008. "Why Do the Rich Save More? A Theory and Australian Evidence," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages S32-S44, 09.
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