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Time Discounting and Wealth Inequality

Author

Listed:
  • Thomas Epper
  • Ernst Fehr
  • Helga Fehr-Duda
  • Claus Thustrup Kreiner
  • David Dreyer Lassen
  • Søren Leth-Petersen
  • Gregers Nytoft Rasmussen

Abstract

This paper documents a large association between individuals' time discounting in incentivized experiments and their positions in the real-life wealth distribution derived from Danish high-quality administrative data for a large sample of middle-aged individuals. The association is stable over time, exists through the wealth distribution and remains large after controlling for education, income profile, school grades, initial wealth, parental wealth, credit constraints, demographics, risk preferences, and additional behavioral parameters. Our results suggest that savings behavior is a driver of the observed association between patience and wealth inequality as predicted by standard savings theory.

Suggested Citation

  • Thomas Epper & Ernst Fehr & Helga Fehr-Duda & Claus Thustrup Kreiner & David Dreyer Lassen & Søren Leth-Petersen & Gregers Nytoft Rasmussen, 2020. "Time Discounting and Wealth Inequality," American Economic Review, American Economic Association, vol. 110(4), pages 1177-1205, April.
    • Handle: RePEc:aea:aecrev:v:110:y:2020:i:4:p:1177-1205
    DOI: 10.1257/aer.20181096
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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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