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Income inequality and aggregate saving : the cross-country evidence

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  • Schmidt-Hebbel, Klaus
  • Serven, Luis

Abstract

The authors empirically review and analyze the link between income distribution and aggregate savings. Recent research has focused on the impact of income inequality and growth. Less attention has been paid to the link between inequality and savings. Once the conventional representative-agent framework is abandoned, consumption theory brings out channels through which income inequality can affect aggregate saving. The authors present new econometric evidence on the link between saving and inequality using new data on income distribution for a large cross-country sample. The results provide no evidence that income inequality affects aggregate saving across countries. This conclusion holds for both industrial and developing countries and is open to changes in measures of saving, in income distribution indicators, and in functional forms.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1561.

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Date of creation: 31 Jan 1996
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Handle: RePEc:wbk:wbrwps:1561

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Related research

Keywords: Environmental Economics&Policies; Economic Theory&Research; Poverty Impact Evaluation; Banks&Banking Reform; Health Economics&Finance; Inequality; Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform; Governance Indicators;

References

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  1. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
  2. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, Springer, vol. 1(2), pages 149-87, June.
  3. Christopher D. Carroll & David N. Weil, 1993. "Saving and Growth: A Reinterpretation," NBER Working Papers 4470, National Bureau of Economic Research, Inc.
  4. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
  5. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  6. Maddison, Angus, 1992. " A Long-Run Perspective on Saving," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 94(2), pages 181-96.
  7. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, Elsevier, vol. 47(2), pages 403-427, August.
  8. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, American Economic Association, vol. 82(4), pages 942-63, September.
  9. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(2), pages 465-90, May.
  10. Blinder, Alan S, 1975. "Distribution Effects and the Aggregate Consumption Function," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(3), pages 447-75, June.
  11. Pischke, Jorn-Steffen, 1995. "Individual Income, Incomplete Information, and Aggregate Consumption," Econometrica, Econometric Society, Econometric Society, vol. 63(4), pages 805-40, July.
  12. Laurence J. Kotlikoff & Lawrence H. Summers, 1980. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc.
  13. Deaton, Angus, 1991. "Saving and Liquidity Constraints," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1221-48, September.
  14. Christopher D. Carroll & Lawrence H. Summers, 1991. "Consumption Growth Parallels Income Growth: Some New Evidence," NBER Chapters, in: National Saving and Economic Performance, pages 305-348 National Bureau of Economic Research, Inc.
  15. Reinhart, Carmen & Ogaki, Masao & Ostry, Jonathan, 1995. "Saving behavior in low- and middle-income developing countries," MPRA Paper 13757, University Library of Munich, Germany.
  16. Anand, Sudhir & Kanbur, S. M. R., 1993. "The Kuznets process and the inequality--development relationship," Journal of Development Economics, Elsevier, Elsevier, vol. 40(1), pages 25-52, February.
  17. Bourguignon, F. & Morrisson, C., 1989. "Income Distribution, Development and Foreign Trade: A Cross-Sectional Analysis," DELTA Working Papers, DELTA (Ecole normale supérieure) 89-05, DELTA (Ecole normale supérieure).
  18. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  19. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
  20. Schmidt-Hebbel, Klaus & Serven, Luis & Solimano, Andres, 1996. "Saving and Investment: Paradigms, Puzzles, Policies," World Bank Research Observer, World Bank Group, World Bank Group, vol. 11(1), pages 87-117, February.
  21. Adelman, Irma & Robinson, Sherman, 1989. "Income distribution and development," Handbook of Development Economics, Elsevier, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 19, pages 949-1003 Elsevier.
  22. Schmidt-Hebbel, Klaus & Webb, Steven B & Corsetti, Giancarlo, 1992. "Household Saving in Developing Countries: First Cross-Country Evidence," World Bank Economic Review, World Bank Group, World Bank Group, vol. 6(3), pages 529-47, September.
  23. Lim, David, 1980. "Income Distribution, Export Instability, and Savings Behavior," Economic Development and Cultural Change, University of Chicago Press, vol. 28(2), pages 359-64, January.
  24. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 600-621, June.
  25. repec:fth:coluec:757 is not listed on IDEAS
  26. Leff, Nathaniel H, 1969. "Dependency Rates and Savings Rates," American Economic Review, American Economic Association, American Economic Association, vol. 59(5), pages 886-96, December.
  27. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(1), pages 83-109, February.
  28. Gupta, K L, 1970. "Personal Saving in Developing Nations: Further Evidence," The Economic Record, The Economic Society of Australia, The Economic Society of Australia, vol. 46(114), pages 243-49, June.
  29. Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 6(2), pages 117-136, Spring.
  30. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
  31. Menchik, Paul L & David, Martin, 1983. "Income Distribution, Lifetime Savings, and Bequests," American Economic Review, American Economic Association, American Economic Association, vol. 73(4), pages 672-90, September.
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Citations

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Cited by:
  1. Dominique Hachette, 1998. "Ahorro Privado en Chile," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 35(104), pages 3-48.
  2. Horst Siebert, 1998. "Commentary : economic consequences of income inequality," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 265-281.
  3. Joel Slemrod, 1998. "The Economics of Taxing the Rich," NBER Working Papers 6584, National Bureau of Economic Research, Inc.
  4. Jason Furman & Joseph E. Stiglitz, 1998. "Economic consequences of income inequality," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 221-263.
  5. Siebert, Horst, 1998. "Consequences of rising income inequality: a comment," Kiel Working Papers 875, Kiel Institute for the World Economy.

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