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Do the Rich Save More?

Author

Listed:
  • Karen E. Dynan
  • Jonathan Skinner
  • Stephen P. Zeldes

Abstract

The question of whether higherlifetime income households save a larger fraction of their income was the subject of much debate in the 1950s and 1960s, and while not resolved, it remains central to the evaluation of tax and macroeconomic policies. We resolve this long-standing question using new empirical methods applied to the Panel Study of Income Dynamics, the Survey of Consumer Finances, and the Consumer Expenditure Survey. We find a strong positive relationship between saving rates and lifetime income and a weaker but still positive relationship between the marginal propensity to save and lifetime income. There is little support for theories that seek to explain these positive correlations by relying solely on time preference rates, nonhomothetic preferences, or variations in Social Security benefits. There is more support for models emphasizing uncertainty with respect to income and health expenses, bequest motives, and asset-based means testing or behavioral factors causing minimal saving rates among low-income households.

Suggested Citation

  • 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.
  • Handle: RePEc:ucp:jpolec:v:112:y:2004:i:2:p:397-444
    DOI: 10.1086/381475
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    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D1 - Microeconomics - - Household Behavior

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